Offset account interest saving.
Annual interest saved
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Cash that quietly cuts your interest bill
A 100 percent offset account is an everyday transaction account linked to your home loan. The balance you keep in it is subtracted from your loan balance before the bank works out interest. Park $50,000 in the offset against a $500,000 loan and you are charged interest as if you owed $450,000. You keep full access to the money, unlike a redraw, yet every dollar sitting there is working at your mortgage rate. This calculator shows the interest you save in a year and, just as usefully, what that saving is worth compared with chasing yield in a savings account.
Why a saved dollar beats an earned one
Here is the insight that makes offsets so powerful and that most people underrate. Interest earned in a savings account is taxable income, so it is taxed at your marginal rate. Interest saved in an offset is not income at all, so it is completely tax-free. To compare the two fairly you have to gross up the offset return to a pre-tax figure. The calculator does this by dividing your mortgage rate by one minus your marginal rate, which tells you the savings-account rate you would need to match the offset after tax. For most borrowers that target rate is far higher than any deposit account on offer.
$50,000 offset at a 6.2 percent loan rate
Take $50,000 in an offset against a loan at 6.2 percent, for a borrower on the 37 percent marginal rate. The annual interest saved is $3,100. To earn the equivalent after tax in a savings account you would need a pre-tax return of about 9.84 percent, because tax would claw back more than a third of the interest. No mainstream savings account pays anywhere near that, which is why the offset wins comfortably. The table sets the two side by side.
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Offset versus redraw, and the deductibility angle
People often treat offset and redraw as interchangeable, but they differ in ways that matter. Money in an offset never leaves your hands, so it does not change the tax character of your loan. Money repaid then pulled back through redraw is technically a new borrowing, which can muddy deductibility if the property later becomes an investment. That distinction is the practical reason advisers favour an offset for anyone who might one day rent the place out. The flip side is fees: some lenders charge a package fee for offset accounts, so on a small balance check that the saving clears the fee.
Who gets the most from an offset
Offsets reward anyone with a mortgage and a cash buffer, but the benefit scales with two things: a high marginal tax rate and a high loan rate. A 45 percent taxpayer gains far more from the tax-free framing than someone on a lower rate. A common mistake is keeping a large emergency fund in a separate high-interest savings account out of habit, while the mortgage ticks along beside it. Moving that buffer into the offset usually lifts your after-tax position immediately, with no loss of access and no extra risk. The one caution is discipline: because the money is so easy to reach, it only helps if you leave it there.
Does an offset reduce my monthly repayment?
Usually not directly. Your scheduled repayment stays the same, but a larger share of it goes to principal because less interest is charged. The real benefit shows up as a shorter loan term and thousands less interest over the life of the loan, rather than a smaller bill each month.
Can I have more than one offset on the same loan?
Many lenders now allow multiple offset accounts against a single loan, which lets you bucket savings for different goals while every dollar still reduces the same interest charge. Check that they are all genuine 100 percent offsets, since partial offsets only credit a fraction of the balance.