Key benefits of an offset account
1
Flexible and accessible
A typical offset account is essentially an everyday transactional account, so it's very easy to deposit and withdraw your funds, especially when compared to a line of credit or redraw facility.
2
High interest 'return' on your savings
Interest rates charged on home loans are usually higher than interest rates paid on everyday transactional accounts. So while you don't receive interest on your savings in the offset account, the interest that you save on your home loan will typically outweigh potential interest gains.
3
Interest calculated daily
Interest is calculated daily, so whether you save regularly or live pay-to-pay, as soon as there are some savings in your offset account for more than one day at any point in time, you will benefit from the offset impact on your home loan.
4
Reducing your tax bill
Savings interest is taxable, but because your offset account balance is used to reduce your loan interest, no tax is payable, so you are effectively reducing your tax bill.
Things to consider with offset accounts
1
Higher fees
You may have higher monthly or annual fees attached to the account, so it's important to check in with your broker to make sure that you will be financially better off using this option - that is, that potential savings will be greater than the cost of any fees.
2
Minimum balance
You may need a minimum balance in the account to realise the potential benefits.
In basic terms, if you do not think you can have a regular sum of money saved in your offset account, then you might not be financially better off with this home loan feature.