An offset account is a transaction account linked to your home or investment loan. You can make deposits or withdraw from it as you would with a regular transaction account. With a standard home loan, you pay interest on the total amount owing. But with an offset, interest is charged on the difference between your home loan balance less the amount in your linked offset account. It uses the money in that account to ‘offset’ your loan balance.
For example if you have a home loan of $400,000 and $30,000 in your offset account; you’ll only be charged interest on a loan balance of $370,000 ($400,000 – $30,000).
This means you can pay less interest with an offset account. The more money you have in the offset account, the less interest you pay on your home loan.
In most cases, the offset feature is only available on variable-rate home loans (although some lenders offer an offset feature on selected fixed-rate home loans).
Things to consider before throwing all your savings into an offset account:
Another advantage is the interest you save by using an offset account won’t be considered income – which means it won’t be taxed. On the other hand, the interest you earn on a savings account will generally be considered income – and that means it may be taxed.
Speak to one of our accountants to see what tax benefits an offset account could have for you.