An offset account is the highest-leverage tool an Australian borrower has. Money sitting in an offset reduces the principal that interest is charged on — daily — without locking the cash away. This calculator shows you the dollar value of that benefit on your specific loan.
How an offset account works
An offset is a transaction account linked to your home loan. It carries a balance like any other account, but the bank treats that balance as a credit against your loan when calculating interest.
If your loan balance is $600,000 and you have $40,000 in offset, the bank charges interest on $560,000 — every day the offset balance is there. Your loan balance stays at $600,000 (offset doesn't pay it down), but the interest charge shrinks. The saving lands in two places: a lower interest line on your monthly statement, and a faster payoff if you keep the repayment the same.
Australian lenders calculate interest daily and debit it monthly. So a $40,000 offset balance that sits for 30 days saves roughly $40,000 × (6.0% ÷ 365) × 30 = $197 of interest in that month. That same balance over a year is around $2,400 saved.
Offset vs extra repayments — they're not the same thing
Mathematically, $1 in offset and $1 paid as an extra repayment have identical interest impact. Every dollar of principal removed (or offset) is a dollar that never accrues interest again. But the practical difference is significant.
| Mechanism | Liquidity | Tax (investment loans) | Risk |
|---|---|---|---|
| Offset balance | Withdrawable instantly | No impact on deductibility | Bank insolvency exposure (covered by FCS up to $250k) |
| Extra repayment + redraw | Subject to redraw rules | Withdrawing for personal use breaks deductibility | None on the loan side |
| Extra repayment, no redraw | Locked away | Safe | None |
The two cases where offset clearly wins:
- Investment loans. Money paid into an investment loan and later redrawn for a personal purpose (a car, a holiday, a renovation on your home) makes that portion of the loan no longer deductible. The ATO treats it as a use-of-funds change. Offset sidesteps the issue entirely — the loan balance never changes, so deductibility is preserved.
- Anyone with a meaningful cash buffer. Salary buffers, tax savings, emergency funds, and saving-for-something balances should sit in offset rather than a savings account. A 6.0% offset benefit at a 30% marginal tax bracket equals an 8.6% pre-tax savings rate — well above any high-interest savings account.
The case where extra repayments win:
- You can't trust yourself with the offset money. Offset is liquid by design. If the cash will get spent, an extra repayment with limited redraw enforces the discipline.
Worked example: $600,000 loan, $40,000 offset
Loan: $600,000 at 6.0% p.a. variable, 30-year term, P&I monthly.
- Without offset: Repayment ~$3,597/month. Total interest ~$695,000.
- With $40,000 average offset, repayment unchanged: Total interest ~$564,000. Saving: ~$131,000. Term shortens to ~26 years.
- With $40,000 offset, repayment dropped to match new minimum: Annual cashflow improves by ~$2,400 per year. Same total interest as no-offset case (you gave back the saving in lower repayments).
The lever is what you do with the cashflow. Keeping the repayment unchanged is what produces the headline saving — anything else is just spreading the benefit out over time.
What balance do you actually need to see real savings?
The often-quoted "$10,000 in offset saves you $X" numbers depend entirely on your rate and remaining term. Here's the rough impact at 6.0% p.a., constant balance, 30-year horizon:
- $10,000 offset: ~$600/year saved, ~$18,000 over the life of the loan
- $25,000 offset: ~$1,500/year, ~$45,000 over the life of the loan
- $50,000 offset: ~$3,000/year, ~$90,000 over the life of the loan
- $100,000 offset: ~$6,000/year, ~$185,000 over the life of the loan
These assume the balance is constant. Real-world offset balances move — your salary lands, gets spent, the average is what matters. Use the average daily balance, not your peak.
Common offset mistakes
Treating offset as savings, not as loan reduction. People keep "savings" in a savings account at 4.5% and a mortgage at 6.0%. That's leaving roughly 1.5% on the table, before tax. Offset first, savings account second.
Splitting offset across non-offset accounts. Some packages have one offset and several regular transaction accounts. Money in the regular accounts doesn't offset. Make sure the salary lands in the offset, not the everyday transaction account.
Paying for offset you don't use. Annual package fees of $200–$400 are common with offset. If your average balance is under ~$5,000, you're paying more in fees than you save in interest. A no-fee basic variable rate is usually cheaper at low balances.
Assuming fixed-rate offset works the same way. Fixed loans usually have zero or limited offset. Always read the product disclosure statement — many lenders advertise "offset available" but cap it at $5,000 or charge an offset margin on the rate.
How to maximise the offset benefit
- Put your salary into the offset account directly. Even a few days of higher balance compounds across the year.
- Hold tax money there. Quarterly BAS, end-of-year ATO bills, GST — money you owe but haven't paid yet should sit in offset.
- Pay credit cards from offset only on the due date, not when you spend. Use the credit card's interest-free window and let the offset balance work for the full month.
- Hold your sinking funds in offset. Insurance premiums, rates, school fees — money earmarked for predictable yearly costs.
For a side-by-side dollar comparison of offset versus extra repayments versus a lump sum, run the same scenario through the Extra Repayment Calculator and the Lump Sum Repayment Calculator.
Frequently asked questions
How much does $100,000 in offset save me?
On a $600,000 loan at 6.0% p.a., $100,000 sitting in offset saves roughly $6,000 in interest in year one, and around $185,000 over a 30-year term if you keep the same monthly repayment (which knocks about 7 years off the loan). The exact figure depends on your rate and how long the balance sits in offset.
Is offset better than paying down the loan directly?
Mathematically they're identical — every dollar in offset reduces the interest charge exactly the way an extra repayment does. The difference is liquidity. Offset stays in your name, withdrawable at any time. An extra repayment is locked in (unless your lender offers free redraw). Most owner-occupiers should prefer offset for the optionality. Investors sometimes prefer redraw for tax reasons — money you've redrawn for personal use can break the deductibility of the loan.
Do I get tax on offset interest?
No. Offset accounts don't pay you interest — they reduce the interest you're charged. There's nothing to declare to the ATO. This is one reason offset typically beats a high-interest savings account: a 6.0% offset benefit equals a roughly 9.0%+ pre-tax savings rate at the top marginal tax bracket.
Can I have offset on a fixed-rate loan?
Most Australian fixed-rate loans don't permit offset, or limit the offset to a partial amount. Macquarie, ING, and a handful of others offer 100% offset on fixed loans, but the rate is usually higher than equivalent variable products. If you want full offset, the variable side of a split loan is usually the cleanest structure.
What's the break-even offset balance?
If your offset has an annual fee (some packages charge $200–$400/year), you need enough balance for the interest saving to outweigh the fee. At a 6.0% loan rate, every $1,000 in offset saves $60/year — so a $300 annual fee breaks even at around $5,000 in offset. Below that, a no-fee variable rate (often 0.05–0.10% lower) usually wins.
How is offset interest calculated?
Australian lenders calculate interest daily. Each day, the system takes your loan balance, subtracts your offset balance, and applies the daily rate (annual rate ÷ 365) to the difference. The daily charges are summed and debited monthly. That's why moving money in and out of offset for even a few days affects your statement.
Can I have multiple offset accounts?
Some lenders (CommBank, Westpac, NAB) allow multiple offset accounts linked to one loan, all of which combine to reduce the interest base. Useful if you want to bucket savings — a holiday account, an emergency fund, a tax pot — without losing the offset benefit.
Should I use offset or pay extra into the loan?
If your lender's redraw is free, instant, and doesn't break tax deductibility, the two are essentially equivalent. If any of those things are in doubt, offset wins. Investors should default to offset — money paid into an investment loan and then redrawn for personal use loses its tax-deductibility, an expensive mistake. Run scenarios in this calculator and the extra repayment calculator to see the dollar comparison.
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Last updated: 30 April 2026