What is an offset account?
Quick answer
An offset account is an everyday transaction account linked to your home loan. The balance sitting in it reduces the loan amount your lender charges interest on, dollar for dollar, without actually paying down the loan balance itself, and you keep full access to the cash.
How it works
Most home loans charge interest daily. Each day, your lender subtracts your offset balance from your outstanding loan balance before working out the interest charge. If you owe $500,000 and hold $80,000 in your offset, interest is only calculated on $420,000. The offset account itself pays no interest, instead you're saving interest on the loan, which has the same effect as earning the loan's interest rate on whatever sits in the account.
You can use it like a normal transaction account, salary deposits, EFTPOS, direct debits, and the money stays fully accessible. Even parking your pay there for a few weeks before bills go out adds up over the life of a 30-year loan. As a rough guide, $10,000 sitting in an offset against a loan charging 6% saves around $600 in interest over a year, and that saving compounds as your loan balance shrinks and your offset balance grows.
The tax advantage
Interest earned in a savings account or term deposit is taxable income. The benefit from an offset account works differently, you're not earning interest, you're avoiding an interest charge, and that saving isn't taxed. For someone on a high marginal rate, the after-tax value of an offset balance is meaningfully better than the same amount sitting in a savings account paying a similar rate.
For investors, this matters even more. Keeping spare cash in an offset (rather than making extra loan repayments and redrawing later) keeps that money separate from the loan, which helps preserve the deductibility of your investment loan interest. Redrawing extra repayments for private use can complicate that deductibility. See our offset vs redraw comparison for the detail.
Offset accounts on fixed-rate loans
Most fixed-rate home loans in Australia don't come with a full offset account, that's one of the trade-offs of fixing. A handful of lenders offer partial or full offset on fixed products, but it's the exception rather than the rule. If offset access matters to you, check the product terms before you fix, or consider splitting your loan between a variable portion (with offset) and a fixed portion.
Check it's actually linked
In 2026, ASIC reviewed how eight of Australia's largest banks, covering around 70% of the home loan market, set up and linked offset accounts, and found widespread failures: accounts opened but never linked to the mortgage, or never opened at all. Affected customers paid more interest than they should have without knowing it. If you have an offset account, it's worth logging into your banking app to confirm the balance is actually being applied against your loan, or calling your lender to check.
🏦 Offset Account Calculator
See how much interest you could save based on your loan and offset balance.
Offset Account vs Redraw Facility
A full comparison of how each works, and which one makes more sense for investors.
Frequently asked questions
How does an offset account reduce my interest?
Your lender calculates interest daily on your loan balance minus your offset balance. The more you keep in the offset, and the longer it sits there, the less interest you're charged.
Is the money in my offset account safe?
Yes, deposits with APRA-regulated banks are protected under the Financial Claims Scheme, up to $250,000 per account holder, per institution, same as any other bank account.
Can I get an offset account on a fixed-rate loan?
Usually not, most fixed-rate loans don't include a full offset. A small number of lenders offer it, so check the product disclosure statement if it matters to you.
What's the difference between an offset account and a redraw facility?
An offset is a separate account, your money stays accessible and never formally enters the loan. A redraw facility lets you access extra repayments already made into the loan itself. For investors, offset is usually the safer choice for preserving interest deductibility.
Does an offset account affect my tax?
The interest you save isn't taxable income, unlike interest earned in a savings account. For investment property owners, keeping funds in an offset rather than redrawing also helps preserve the deductibility of loan interest, worth discussing with your accountant.
Related terms
Disclaimer
This is general information only, not financial or tax advice. How offset accounts are structured varies by lender and product, always check your loan's terms and confirm your offset is correctly linked with your bank, and speak to a financial adviser or accountant about what's right for your situation.