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How Does an Offset Account Work?

A lot of people ask “do you have an offset account?”, but the more common question asked is “how does an offset account work?” A lot of people are unsure of what an Offset Account is and how it works. Here’s an overview to explain it to you.


What is an offset account?

An offset account is a transaction account. It can be used just like any other savings or transaction account you hold. The difference is that instead of earning interest on the account (not that you earn much interest nowadays) you actually save money on your home loan.

Whatever funds of your own you have in your 100% offset account, the corresponding amount of your home loan does not get charged interest. For Example, let’s say you have a home loan for $400,000 and you have $10,000 of your own funds sitting in your offset account. You do not earn interest on your savings, however on your home loan, only $390,000 will be charged interest. The other $10,000 does not get charged interest as the funds are “Offset” from your savings.


Not all loans have offset

Not all accounts have an offset account. Most introductory and fixed rate home loans do not. You also need to be careful that an offset home loan doesn’t have a higher interest rate than maybe a Base Variable Rate Home Loan. There may also be annual or monthly fees charged by the lender to have the offset facility. If you are not saving more than the fees involved, then an offset account may not be the best option for you. If this is the case, then maybe a switch to a lower interest rate loan may be in your interest.


All-in-one Loans

Some lenders have an “all in one” home loan. This is where you don’t have a separate offset account, but you have greater access to the home loan itself. Some all-in-one loans allow you to pay your income straight onto the home loan. They even allow your direct debits to come out of the home loan as well. You need to be careful with these loans. It can be hard to distinguish how much of your deposits are surplus funds and how much is require to go towards your loan repayment for the month.



The Home Loan Comparison Co.  compares home loans from a much wider variety of banks than most people have time to consider, and we find the loan that suits your goals.

We are experienced, knowledgeable and dedicated to building ongoing relationships to keep on providing personal and valuable service that is rarely experienced when dealing with the banks.

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