Is an offset account better than extra repayments?

Both save the same amount of interest mathematically. The key difference is accessibility: offset account funds remain fully accessible at any time — you can use them for emergencies, investments, or any purpose. Extra repayments into the loan may have restricted access through redraw. If you value flexibility, an offset account is generally the better choice. Many high earners use their salary account as an offset to maximise the interest-free period.

What is a 100% offset account?

A 100% offset account means every dollar in the account reduces your loan balance dollar-for-dollar for interest calculation purposes. This is the most common type offered by Australian lenders. Some older or lower-cost loan products offer partial offset — where only a percentage (e.g. 40%) of the offset balance is credited against the loan. Always confirm you have a 100% offset with your lender.

Can I have multiple offset accounts?

Some lenders allow multiple offset accounts linked to one home loan — useful for budgeting by purpose (e.g. a holiday fund, emergency fund, bills account). Not all lenders offer this feature. It is worth asking your broker to find lenders that offer multiple offset accounts if this is important to you.

Do offset accounts work on fixed rate loans?

Most fixed rate home loans in Australia do not offer a 100% offset account — this is one of the main trade-offs when fixing your rate. Some lenders offer a partial offset on fixed rate loans. If having an offset account is important to you, a variable rate or split loan (part fixed, part variable with offset on the variable portion) may be worth considering.

Is the interest saving from an offset account tax-free?

For owner-occupied home loans, yes — the interest saving from an offset account is effectively tax-free, because you are simply paying less interest (not earning taxable income). This makes the offset account more tax-efficient than earning interest in a savings account, where the interest is taxable at your marginal rate. For investment property loans, the interest saving reduces your tax deduction — consult your accountant for advice specific to your situation.

Offset Account Calculator 2026

Q: How does an offset account save interest?

An offset account is a transaction account linked to your home loan. The balance in the offset account is subtracted from your loan balance before interest is calculated each day. If your loan balance is $600,000 and you have $50,000 in your offset account, you only pay interest on $550,000. This can save tens of thousands of dollars in interest over the life of the loan.

🏠 Your Loan

Loan Balance

Interest Rate % p.a.

Remaining Loan Term

yrs

💧 Offset Account

Current offset balance (amount in your offset today)

Monthly deposits into offset (salary, savings etc.)

Monthly withdrawals from offset (living expenses)

Offset type

Loan balance vs offset balance

Interest charged

Offset

Loan balance (interest charged on this) Offset (reduces interest)

100% offset is standard for most variable rate loans. Confirm with your lender before assuming offset type.

Total Interest Saved by Offset

$—

Enter your details to see your savings

Years Saved—

Monthly Saving—

Offset in 10 yrs—

Monthly Interest — With vs Without Offset

Without Offset

$—

interest this month

With Offset

$—

interest this month

Full Savings Breakdown

Loan balance—

Current offset balance—

Effective balance (interest charged on)—

Net monthly offset growth—

Offset balance in 5 years—

Offset balance in 10 years—

Total interest without offset—

Total interest with offset—

Total interest saved—

Cumulative Interest Saved Over Time

How your offset savings compound as your balance grows

Cumulative interest saved

Want a loan with a 100% offset account?

Not all loans include offset accounts — and some charge extra fees for the feature. Our brokers find the best offset home loan for your situation across 50+ lenders.

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How an Offset Account Works

An offset account is a transaction account linked directly to your home loan. The balance in your offset account is subtracted from your loan balance before interest is calculated each day — so every dollar you keep in the offset account is saving you the home loan interest rate (currently 5–7%) instead of earning a much lower savings account rate (typically 3–5%). For owner-occupiers this saving is also effectively tax-free.

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How interest is calculated

Without offset: Interest = Loan Balance × Daily Rate.

With 100% offset: Interest = (Loan Balance − Offset Balance) × Daily Rate.

The more you keep in the offset, the less interest you pay every single day.

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Using your salary as offset

Many borrowers deposit their entire salary into their offset account and pay expenses from it. Even if the money is only in the account for a few weeks, it reduces the daily interest charge during that time — a strategy that can save thousands over the loan term.

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Offset vs extra repayments

Both save the same interest — compare them in our Extra Repayments Calculator. The difference is flexibility — offset funds remain instantly accessible with no redraw fees or restrictions. Extra repayments into the loan may be locked away depending on your lender's redraw policy.

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Tax advantage for owner-occupiers

Savings account interest is taxable income. Offset account savings simply reduce the interest you pay — and reduced expenses are not taxed. At a 37% marginal tax rate, a 6% offset saving is equivalent to a 9.5% savings account return before tax.

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Loan package fees

Many loans with 100% offset accounts come as part of a loan package with an annual fee ($395–$395/year). The fee is usually worth it once your offset balance exceeds $30,000–$50,000. Our brokers can find fee-free loans with offset where available.

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Fixed rate loans

Most fixed rate loans don't offer a 100% offset account. If an offset is important to you, consider a variable rate or a split loan — part fixed, part variable — where the variable portion has a 100% offset attached. Our brokers can find the right structure for you — see our home loans page.

Offset Savings at a Glance

How much interest does a $50,000 offset balance save on a $600,000 loan at 6.09% with 25 years remaining?

Offset Balance	Monthly Interest Saving	Annual Saving	Total Saved (25yr)
$10,000	~$51/month	~$609/year	~$21,000
$30,000	~$152/month	~$1,827/year	~$57,000
$50,000	~$254/month	~$3,045/year	~$89,000
$100,000	~$508/month	~$6,090/year	~$158,000
$150,000	~$761/month	~$9,135/year	~$210,000

Figures assume a constant offset balance. Actual savings are typically higher because the offset balance grows over time (as modelled in the calculator above).

Offset Account FAQs

How does an offset account save interest?+

Your lender calculates interest daily on your outstanding loan balance. A 100% offset account reduces that balance by whatever amount you have sitting in the offset. If your loan is $600,000 and you have $50,000 in the offset, you pay interest on just $550,000. At 6.09% p.a., that single $50,000 saves approximately $254 per month — and the saving compounds over time as your offset balance grows.

Is an offset account better than a savings account?+

Usually yes, for owner-occupiers. Savings account interest is taxable at your marginal rate, while offset savings simply reduce the interest you pay — which is not taxable. At a 37% marginal tax rate, avoiding 6% interest is equivalent to earning 9.5% in a savings account before tax. The offset account effectively gives you a guaranteed, tax-effective return equal to your home loan interest rate.

Can I use my salary account as an offset?+

Yes — and this is one of the most effective strategies. If your entire salary is deposited into your offset account each month, your loan balance is reduced by your full salary for however long the money sits there (even if you spend it down to pay bills throughout the month). Many high-earning professionals structure their finances this way to maximise the interest reduction with no extra effort.

What is the difference between 100% and partial offset?+

A 100% offset means every dollar in your account reduces the loan balance by one dollar for interest purposes. A partial offset (e.g. 40%) means only 40 cents of each dollar offsets the loan. Most modern variable rate loans in Australia offer 100% offset — partial offset products are rare and largely a legacy feature. Always confirm you have 100% offset with your lender.

Can I have an offset account on a fixed rate loan?+

Generally no — most fixed rate home loans in Australia do not offer a 100% offset account. This is one of the main trade-offs when fixing your rate. Some lenders offer a partial offset on fixed portions. If an offset account is important to you, a variable rate loan or a split loan structure (e.g. 50% fixed, 50% variable with a 100% offset on the variable portion) is worth discussing with your broker.

Does an offset account affect my investment property tax deductions?+

Yes — for investment properties, the interest saving from an offset account reduces the amount of interest you can claim as a tax deduction. This makes the offset account less tax-efficient for investors compared to owner-occupiers. Investors typically benefit more from keeping offset funds on an owner-occupied loan and allowing the investment loan to run at its full deductible interest level. Always consult your accountant before structuring investment loan repayments. Learn more about investment home loans and how to structure them correctly.