Broker guide
Offset Account: How It Works and Saves Interest
See how an offset account reduces the loan balance charged interest, how everyday deposits affect savings and which product checks matter.
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An offset account is a transaction account linked to an eligible home loan. Its balance reduces the amount of the loan charged interest. Your money stays in the account until you spend or transfer it, while the home loan remains a separate debt.
An offset home loan combines the mortgage with that account feature. The saving depends on how much eligible money you hold each day, the loan’s interest rate and the extra cost of the product.
What an Offset Account is
An offset account lets money in an everyday account reduce your home-loan interest without paying that money into the loan. An eligible $30,000 balance against a $500,000 loan means interest is calculated on $470,000 with a 100% offset.
The mortgage debt remains $500,000 before repayments or other loan transactions. The property still secures that debt. Withdrawing the $30,000 restores the interest calculation to the full outstanding loan balance.
These account types treat your money differently.
| Where the money sits | What happens to the money | Interest effect | Access |
|---|---|---|---|
| Offset account | Money stays in a separate linked transaction account | The eligible balance reduces the loan balance charged interest | Everyday transactions follow the account terms |
| Extra loan repayment with redraw | Money repays part of the loan | The lower loan balance reduces interest | Taking money back depends on the loan’s redraw rules |
| Interest-bearing savings account | Money stays in a deposit account | The bank pays deposit interest under its savings terms | Withdrawal and bonus-interest conditions depend on the account |
Moneysmart’s offset explanation distinguishes offset funds from extra repayments available through redraw. A normal transaction or savings account doesn’t reduce mortgage interest merely because you hold it with the same bank.
Loan Structure and Interest Effect
The lender calculates interest after subtracting the eligible offset balance from the outstanding loan balance. For a 100% offset, each eligible dollar reduces the balance charged interest by one dollar, up to the linked loan balance.
Worked Interest Example
This fictional example assumes a $500,000 loan at 6% a year and $60,000 in an eligible 100% offset for all 30 days. Both balances stay unchanged during the calculation.
The example uses a 365-day year and excludes fees.
| Calculation | Without offset | With offset |
|---|---|---|
| Outstanding loan | $500,000 | $500,000 |
| Eligible offset balance | $0 | $60,000 |
| Balance charged interest | $500,000 | $440,000 |
| Interest for 30 days | $500,000 multiplied by 0.06 multiplied by 30, divided by 365 | $440,000 multiplied by 0.06 multiplied by 30, divided by 365 |
| Rounded interest charge | $2,465.75 | $2,169.86 |
The illustrative interest saving is $295.89. You can calculate it directly as $60,000 multiplied by 0.06 multiplied by 30, divided by 365. Actual interest depends on daily balances, rate changes and the lender’s calculation terms.
For changing balances, calculate the saving for each day’s eligible balance, then add those daily amounts. A balance held for half the period produces less saving than the same balance held throughout.
Does an Offset Account Reduce Monthly Repayments?
An offset account can reduce interest while the required principal-and-interest repayment stays the same. Principal is the debt you repay. When the repayment stays unchanged, less goes to interest and more pays down that debt.
CommBank’s Everyday Offset Account guide, as at October 2026, says its linked offset doesn’t change the minimum required repayment. That is a CommBank rule, not a promise about every lender’s repayment settings.
An eligible offset can also reduce the interest charged during an interest-only period. NAB explains interest-only repayments, as at October 2026, as covering the interest charged for a set period. The amount collected depends on the loan’s payment arrangements.
Lower interest alone doesn’t repay principal, and an offset doesn’t extend the agreed interest-only period.
Keeping repayments unchanged can help repay a principal-and-interest loan sooner. The actual term depends on future rates, balances and repayments, so the 30-day example doesn’t predict a payoff date.
What if the Offset Equals or Exceeds the Loan?
A 100% offset can reduce the balance charged interest to zero when the eligible offset balance equals the linked loan balance. You still owe the loan and must meet its repayment obligations.
Money above the eligible loan balance can’t reduce its interest below zero. Excess funds don’t automatically earn deposit interest. CommBank’s guide, as at October 2026, caps the offset benefit at the home-loan balance and pays no interest on Everyday Offset funds, including the excess.
A genuine offset saving is avoided loan interest. It isn’t automatically interest income paid to the account.
The Australian Taxation Office (ATO) sets out acceptable arrangements in Taxation Ruling TR 93/6. Ask a qualified tax adviser how your actual account and loan purpose affect tax treatment. For investment-specific questions, use the investment-property offset guide.
Day-to-Day Offset Account Use
Salary deposits increase the balance available to offset interest. Bills, direct debits and debit-card spending reduce it when money leaves the account. Withdrawals and transfers out have the same effect.
A credit-card purchase doesn’t itself withdraw money from the offset account. Paying the card bill from that account does. This timing explains the balance change without making a credit-card strategy necessary for an offset to work.
In a fictional 30-day period, assume an eligible balance of $20,000 for 15 days, then $10,000 for 15 days after bills. At 6% a year, the illustrative saving is $73.97 using a 365-day year. Keeping $20,000 for all 30 days would save $98.63 under the same assumptions.
The difference comes from the amount held each day. A month-end screenshot can’t show the saving from the whole month. CommBank’s offset explainer, as at October 2026, describes accessible everyday funds and explains why the amount held affects the benefit.
Use a realistic balance pattern based on income dates and outgoing payments when estimating savings. Money reserved for a bill helps only while it remains eligible in the offset.
Costs, Eligibility and Limits
An offset account is worthwhile only when its interest benefit justifies the loan and account costs for your expected balance. A higher loan rate can consume the benefit even before a package fee applies.
This fictional annual comparison uses unchanged loan and offset balances. All figures are assumed Australian-dollar amounts, including any applicable tax. It excludes switching costs and any interest earned elsewhere.
| Assumption or result | Basic loan | Loan with 100% offset |
|---|---|---|
| Loan balance | $500,000 | $500,000 |
| Annual interest rate | 5.8% | 6% |
| Offset held every day | None | $30,000 |
| Annual loan interest | $29,000 | $28,200 |
| Annual package fee | $0 | $395 |
| Separate account fee | $0 | $0 |
| Interest plus listed fees | $29,000 | $28,595 |
The offset loan costs $405 less under these assumptions. Its $1,800 gross offset benefit covers the $1,000 cost of the higher rate and the $395 fee.
With only $5,000 held throughout the year, the gross benefit falls to $300. The offset loan then costs $1,095 more than the basic loan.
The approximate break-even balance is $23,250: divide the $1,395 extra annual cost by the 6% offset-loan rate. This calculation applies only to the stated fictional rates and fees. Add account charges and one-off costs when they apply.
Compare the written terms of the actual products before relying on that method. CommBank’s offset explanation, as at October 2026, identifies eligibility, offset percentage and balance limits as separate checks. Account fees and transaction restrictions also affect the choice.
Confirm which loan portion receives the benefit, how much of the account balance qualifies and the account-holder conditions. A 100% offset applies the full eligible balance.
A partial offset gives less benefit under its product terms. Eligibility attaches to a particular product and loan portion, not to every mortgage from that lender.
A broker can use Bulma’s Policy Advisor to check lender policy against the quoted wording behind its answer. Get the actual interest rate and fees from the lender’s product documents or quote, because Bulma doesn’t quote product pricing.
Choose the Relevant Offset Check
Choose the next offset check according to the decision you need to make. Keeping these questions separate helps you distinguish product eligibility from whether the account is operating correctly.
- For account numbers and holder conditions, use the multiple-offset account guide.
- For a fixed product or a loan split between fixed and variable portions, use the fixed-loan offset guide.
- For opening an account, verifying its link or correcting missing savings, use the offset account linkage guide. It covers the Australian Securities and Investments Commission (ASIC) findings and correction evidence.
- For a dated product shortlist and total-cost comparison, use the offset home-loan comparison.
- For a commercial facility, use the business-loan offset guide.
The disadvantages of an offset account include package fees, a possible rate premium and the need to retain enough money for a useful benefit. Spending the balance reduces the saving while those extra costs can continue.
Redraw can suit a borrower who wants to make extra repayments and doesn’t need the money as an everyday transaction balance. Compare its access conditions with your expected withdrawals and the price of the loan. Choose the offset when the realistic interest saving and access you need justify its extra cost.
