What is a home loan offset account?
An offset account is a type of bank account that’s linked to your home loan, with the funds inside it reducing the amount of interest you pay on your mortgage. Generally speaking, offset accounts are linked to variable rate home loans, but some lenders may also offer them on fixed rate ones.
How does a home loan offset account work?
When it comes to depositing funds, a home loan offset account works in much the same way as other bank accounts—you can deposit money into the account yourself, or even have your salary paid into it. The money will then be available for your everyday banking needs, so your offset account can generally be used as a transaction account, typically with a card attached.
Once money is deposited into your offset account, however, it will not earn interest. Instead, the balance of the account will be deducted from, or used to ‘offset’, the principal balance of your home loan when interest is calculated (usually daily). This means the more money you have in your offset account, the less interest you’ll pay on your home loan each repayment cycle. Importantly, this won’t reduce the size of your repayment. Rather, it will see less of your repayment going towards interest and more going towards paying down the principal balance.
For example, say you have $700,000 owing on the balance of your home loan and $100,000 deposited in your offset account. That $100,000 will ‘offset’ the $700,000 principal balance, meaning you’ll only pay interest on the $600,000 difference between what you’ve deposited and what you owe on your home loan.
What types of offset accounts are there?
There are generally two types of offset accounts:
- 100% offset accounts deduct the full balance of your linked offset account from your home loan balance when interest is calculated.
- Partial offset accounts only offset part of your home loan balance when interest is worked out, at a percentage determined by your lender.
While most lenders in Australia offer 100% offset accounts, it’s important to check this is the case. Some lenders also provide multiple offsets tied to the same loan, which may be useful for those that like budgeting across multiple accounts.
How to find the best home loan rates with an offset account?
Some of the best rates for home loans with offset accounts from our Online Partners are displayed on the comparison table at the top of this page. To get more tailored results, click the ‘Get started’ button at the top of the page and answer a few questions about your desired loan and your property’s value. You’ll then be able to filter for things like interest and comparison rate, provider, and monthly repayment amount.
It’s important to read the documentation, such as the Product Disclosure Statement (PDS) and Target Market Determination (TMD), for any loan product you’re considering. It may also be worth obtaining professional financial advice before making a decision.
What are the pros and cons of home loan offset accounts?
Pros
- Less interest to pay on your home loan: By building up funds in your offset account, you can lower the balance of your home loan for interest calculation purposes. This could help you save a significant amount of interest over the life of the loan.
- A way to get your savings to work for you: If your home loan’s interest rate is higher than the rates offered on high-interest savings accounts, you may be better off parking your savings in your offset account. Particularly, as interest earned is typically taxable, while interest saved isn’t.
- Access to your funds: You never know when you’ll need to access cash for one of life’s necessities. Putting money in your offset account can be a way to save on interest repayments while still having access to cash when you need it.
Cons
- Potentially higher fees: Variable rate home loans with offset accounts can come with higher fees than other home loans.
- Potentially higher interest rates: A home loan with features like an offset account may come with a higher interest rate than a basic loan with fewer features. If you have a variable rate loan, you’ll also be vulnerable to interest rate rises.
- Need to have money in the account: An offset account is only beneficial when you have money in it, actively offsetting the balance of your home loan. If you take one out but keep it at a low balance, you may find yourself paying higher fees or interest rates without reaping benefits.
How to check your offset account is linked properly
Lenders have come under increased scrutiny over not correctly linking borrowers’ offset accounts to their home loans, with an Australian Securities & Investments Commission (ASIC) report finding $55 million was paid in compensation to impacted customers across eight banks in the two years through to August 2025. Therefore, it’s important to make sure your offset account is functioning as expected.
For starters, check with your lender either by calling it directly or logging on to its banking app or online platform.
It’s also worth doing the maths yourself. Here’s how to do a rough estimate:
- Calculate your net balance. This is the amount you owe on your loan minus the money in your offset account. If your offset account balance and money owing varies in the month, use an estimate.
- Work out your daily rate. This is your annual mortgage interest rate divided by the number of days in the year (usually 365).
- Multiply this by your net balance. This is how much your bank is charging you in interest a day. To work it out over a month, times it by the days in the month.
Here’s an example calculation using a $600,000 loan with a 6% p.a. rate and $50,000 in an offset account.
Net | $600,000 - | = $550,000 |
|---|---|---|
Daily | 6% p.a. ÷ 365 | = 0.00016 |
Daily | $550,000 x | = $90.41 per day |
Monthly | $90.41 x | = $2,803 |
Source: Canstar. Note: Calculations are estimates for illustrative purposes only. Monthly offset balance of $50k on average throughout the 31-day month. Does not factor in any principal paid towards the loan. Assumes the interest rate remains constant.
How to get the most out of your offset account
To maximise the output of your offset account, consider some of the following strategies:
- Store as much of your savings in your offset account as possible in order to make the most of the interest saving benefits, keeping in mind that home loan interest is usually calculated daily.
- If you have funds sitting in a savings account with a lower interest rate than your home loan rate, think about adding them to your offset account. You also generally have to pay tax on savings account earnings, but not on interest saved with an offset account.
- Treat your offset account as your main transaction account, like by having your salary paid into it and setting it up for your regular direct debits.
- Pay your bills strategically, as you may want to keep funds in your offset account for as long as possible. Some people take advantage of a credit card’s interest-free period in order to maximise this—as long as you always pay your statement balance in full each month.
