What is an offset account?

February 03, 2016
Melanie O'Connell

An offset account is an everyday account linked to your home loan. 

At the time your home loan interest is calculated, the balance in this account is considered a deduction from your home loan principal. As a result, the interest charged to the loan is reduced, without you making additional repayments. 
Let’s say for instance, your loan is worth $300,000 and you have $20,000 in the linked account. The daily interest charge will be based on a loan of $280,000 ($300,000 less $20,000). 
For every day that you have money in your offset account, your interest charge for the loan will be reduced. 
The value of an offset account can then have a snowball or compounding effect. Because your regular repayments remain the same, more of this payment goes towards reducing the loan principal, helping you pay off the loan sooner. 

How can you make the most of your offset account 

• Set up your salary to be deposited directly into your offset account. 
• If you’re saving for something such as an overseas holiday or a new car, keep this money working for you until the day you need it by saving it in your offset account. 
• Use a credit card for everyday purchases and make the most of the interest free period i.e. 45 or 55 days. Just make sure you pay the balance off in full each month to avoid fees and charges, I recommend clients set up a automatic direct debt on their internet banking this way you'll never incur unwanted interest. 
• Consider if a savings account is still right for you. Usually, the interest you save through your offset account will be worth more than the interest you earn on a savings account and you may also save on taxation by not actually earning any interest. Plus, your money won’t be locked away for a fixed term.
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