An offset account is one of the most powerful tools available to Australian home loan borrowers but most people don’t see the numbers until it’s too late. Our free calculator shows you how much interest you save and how many years you cut from your loan term simply by keeping your savings in an offset account rather than a separate savings account.
Enter your loan balance, interest rate, remaining term, and average offset balance to see your results. If you add a monthly contribution (such as your salary), the calculator models how your growing offset balance compounds the saving over time. A year-by-year breakdown is also available.
Not sure whether your loan includes an offset account or whether one is worth a slightly higher rate? Book a free assessment and a Stanford Financial broker will compare loan structures across 50+ lenders.
See how much interest your offset account saves — and how many years it cuts from your loan.
| Year | Balance (no offset) | Balance (with offset) | Annual interest saved | Cumulative saving |
|---|
Want to know if an offset account is right for your loan? Not all loans include offset accounts — and some charge higher rates for the feature. Our brokers can find you a loan with a competitive rate and an offset account included.
Book a Free AssessmentAn offset account is a transaction account linked to your home loan. The balance you hold in it is offset against your loan balance before interest is calculated each day. You do not earn interest on the offset account — instead, the money in it reduces the amount of interest charged on your loan, which is a more tax-efficient outcome for most borrowers.
If your home loan balance is $600,000 and you have $40,000 in your offset account, interest is calculated on $560,000 rather than $600,000. At 6.5% per annum, that saves approximately $2,600 in interest in the first year alone. Over 30 years with no additional contributions, that $40,000 offset balance saves over $70,000 in total interest and cuts approximately 3.5 years off the loan term.
Your monthly repayment amount does not change when you use an offset account. The saving occurs because more of each repayment goes toward reducing your principal rather than servicing interest. Over time, this compounds, a smaller principal means less interest charged the following month, which means even more of the next repayment reduces principal, and so on.
Interest on Australian home loans is calculated daily and charged monthly. Each day, your lender calculates interest on the outstanding loan balance minus the offset account balance. This means every dollar sitting in your offset account is actively reducing your interest charge that day.
The most powerful way to use an offset account is to have your salary paid directly into it. This maximises the offset balance throughout the month before bills are paid. Even if the balance drops after bills are paid, every day those funds sat in the offset account reduced the daily interest charge.
Unlike a redraw facility, funds in an offset account remain in a separate account you control like a normal transaction account. You can access the money freely without restriction or approval. This makes offset accounts preferable to redraw for most borrowers who want flexibility.
Stanford Financial
How an offset account reduces the interest you pay
Interest is charged only on the difference between your loan balance and your offset balance — every dollar in offset saves you interest at your mortgage rate
The following table shows indicative interest savings for a $600,000 loan at 6.5% per annum over 30 years at various offset balances. Results assume a constant offset balance with no monthly contributions.
| Offset Balance | Annual Interest Saved | Over 30 Years | Years Saved (approx) |
| $10,000 | ~$650 | ~$16,000 | ~0.7 years |
| $20,000 | ~$1,300 | ~$31,500 | ~1.4 years |
| $30,000 | ~$1,950 | ~$46,500 | ~2.1 years |
| $50,000 | ~$3,250 | ~$74,500 | ~3.5 years |
| $75,000 | ~$4,875 | ~$106,000 | ~5.3 years |
| $100,000 | ~$6,500 | ~$134,000 | ~7.0 years |
| $150,000 | ~$9,750 | ~$183,000 | ~10.5 years |
Indicative only. Based on $600,000 loan, 6.5% p.a., 30-year P&I, constant offset balance with no growth. Use the calculator above to model your specific loan and offset amount.
Borrowers often confuse offset accounts with redraw facilities and savings accounts. They all hold money, but they work very differently and the tax and interest implications are significant.
Reduces your daily interest charge dollar for dollar. Funds remain in a separate accessible account. You can deposit and withdraw freely without lender approval. For investment property loans, keeping funds in a separate offset rather than redrawing them preserves the tax deductibility of the loan interest — an important distinction that a tax adviser can clarify for your situation.
A redraw facility allows you to access extra repayments you have made on your loan. The extra repayments reduce your loan balance and therefore reduce interest charged — similar in effect to an offset. However, funds are not in a separate account; they are inside the loan itself. Accessing them requires a redraw request (which some lenders can delay or restrict). For investment loans, redrawn funds used for personal purposes can complicate the deductibility of loan interest.
A savings account earns interest, but the interest earned is taxable income. At a 6.5% home loan rate versus a 5.0% savings rate, even before tax the home loan wins. After applying your marginal tax rate to the savings interest (for example, 37% or 45%), the net return from the savings account is materially lower than the effective return from offsetting your home loan. For most borrowers, an offset account is more efficient than a separate savings account.
Example: $50,000 in a 5.0% savings account earns $2,500 per year. After 37% tax, the net return is $1,575. The same $50,000 in an offset account against a 6.5% home loan saves $3,250 in interest per year — completely tax-free. The offset account is more than twice as effective on an after-tax basis in this scenario.
Stanford Financial
Offset account vs savings account: which wins for home loan borrowers?
$600,000 loan · 6.0% p.a. · 37% marginal tax bracket · April 2026
Offset beats savings account by:
$1,582/year
($3,000 vs $1,418 · same $50,000 · same borrower)
Salary credit strategy
Have your salary paid directly into your offset account and pay all expenses from it at the end of the month. Every day your salary sits in offset, it reduces the interest charged — even if the net balance at month end is the same.
Emergency fund strategy
Move your emergency fund into the offset account. The money remains fully accessible at any time, but instead of earning 4.5% taxable in a savings account, it's effectively earning 6.0% tax-free by reducing your mortgage interest.
Investors: offset vs redraw matters for tax deductibility
For investment properties, funds held in an offset account preserve the full interest deduction on the original loan balance. Funds withdrawn from redraw reduce the loan principal — and if redrawn for personal use, that portion of interest becomes non-deductible. Always use an offset, never redraw, for investment loans where you may need to access funds.
Not all loans include an offset account. Some lenders charge a higher rate or an annual fee for offset access. A broker can identify which lenders offer 100% offset at the most competitive rate for your loan size — in many cases the rate premium for offset is zero. Call us on 0483 980 002 or book a free assessment to find out.
Loans with offset accounts sometimes carry a slightly higher interest rate than basic variable loans without an offset feature. Whether the offset is worth the rate premium depends on your average offset balance and the rate difference.
As a general rule: if your average offset balance is large relative to your loan, the interest saving typically outweighs a small rate premium. If your offset balance is modest (for example, under $10,000 on a $600,000 loan), a lower basic variable rate may deliver better results. The key question is the break-even offset balance — the average balance needed to justify the rate difference.
On a $600,000 loan, a 0.20% rate premium costs approximately $1,200 per year in additional interest. To justify this, your offset account needs to save more than $1,200 per year — which requires an average balance of roughly $18,500 at 6.5%. If your average balance exceeds this, the offset account pays for itself and then some. A Stanford Financial broker can run this comparison across actual loan products.
No. Your monthly repayment amount stays the same. What changes is how much of each repayment goes toward interest versus principal. With a higher offset balance, less interest is charged, so more of each repayment reduces the loan balance. This is how the loan term shortens – the principal reduces faster with each repayment, so the loan is paid off earlier at the same repayment amount.
Some lenders allow multiple offset accounts linked to a single loan — useful for households that like to bucket their savings by purpose (emergency fund, holiday fund, etc.). Not all lenders offer this feature. If multiple offset accounts are important to you, it should be part of the lender selection criteria when applying for a loan.
Most fixed rate loans do not allow offset accounts. Some lenders offer a partial offset or 100% offset on fixed loans as a premium product, but this is uncommon and typically comes with restrictions. The full benefit of an offset account is generally available on variable rate loans. Many borrowers who split their loan between fixed and variable link the offset to the variable portion.
Yes. Money in an offset account is protected under the Australian Government Financial Claims Scheme (FCS), which guarantees deposits up to $250,000 per account holder per authorised deposit-taking institution (ADI). This is the same guarantee that applies to standard savings and transaction accounts.
Yes, and for investment loans an offset account has an additional tax benefit over redraw. Keeping funds in an offset account rather than making extra repayments preserves the full deductibility of the loan interest — because the loan balance itself is unchanged. If you instead made extra repayments and later redrawed them for personal use, the interest on the redrawn amount may no longer be deductible. Always seek advice from a qualified tax adviser for your specific situation.
As much as possible. Every dollar reduces the interest charged on your loan each day. There is no minimum or maximum that makes sense in isolation — the more you hold, the more you save. Many borrowers route their entire salary into their offset account and pay bills from it, maximising the balance throughout the month. The extra repayments calculator can help you compare the benefit of parking savings in the offset versus making extra repayments directly.
Not all offset accounts are equal. Some lenders charge a significant rate premium for the offset feature. Others include a 100% offset account at a competitive variable rate with no additional cost. Knowing which lenders offer the right combination for your balance and loan size requires access to the full market — not just the front page of one bank’s website.
Want to find the best offset account loan for your situation? Book your free assessment today — call us on 0483 980 002 or contact us online.
