An offset account saves you interest at your full home loan rate on every dollar you keep in it. At today’s average variable rate of 6.63%, $50,000 held in an offset against a $600,000 loan saves about $3,315 in the first year, and if you keep making your normal repayments, it pays the loan off about five years early and saves around $243,000 over the life of the loan. Because your money stays available, it’s one of the most effective ways to cut interest without locking savings away.
How an offset account works
An offset is a transaction account linked to your home loan. Each day, the lender subtracts the offset balance from your loan balance before calculating interest. Your repayment stays the same, so more of each repayment goes to paying off the loan.
For example, with a $600,000 loan and $50,000 in the offset, you’re only charged interest on $550,000. Interest is calculated daily, so even money that sits in the account for a few weeks before you spend it reduces interest.
How much you can save
| Offset balance | Interest saved in the first year | Time cut off the loan | Total interest saved |
|---|---|---|---|
| $10,000 | About $663 | About 1 year | About $59,000 |
| $25,000 | About $1,660 | About 3 years | About $137,000 |
| $50,000 | About $3,315 | About 5 years | About $243,000 |
| $100,000 | About $6,630 | About 8.5 years | About $399,000 |
Our calculations for a $600,000, 30-year principal and interest loan at 6.63% (the average variable rate according to Canstar, as at 2 October 2026), assuming the balance stays in the offset and you keep making the normal repayment. Results are before fees.
Because the saving is interest you don’t pay, it isn’t taxed. Earning the same return in a savings account would need a higher rate before tax.
100% vs partial offset
- Full (100%) offset. Every dollar in the account offsets a dollar of the loan. This is the most common type.
- Partial offset. Only part of the balance offsets the loan, for example 40%. With $50,000 in a 40% offset, you’d save about $112,000 over the life of the loan in our example, less than half the full offset saving.
Always check you’re getting a 100% offset, and that it isn’t capped at a maximum balance.
Is an offset worth the fee?
Full offsets usually come with package loans that charge an annual fee, often around $300 to $400, and sometimes a slightly higher rate than basic loans. As a rough guide, at 6.63% you need an average offset balance of about $6,000 for the interest saved to cover a $400 fee. Compare the package’s comparison rate with a no-frills loan; see which features are worth the fee.
Making the most of an offset
- Pay your salary straight into it. Your money offsets interest from the day it arrives.
- Use it as your everyday account. Some people pay daily spending on a credit card and clear it in full each month from the offset, keeping the cash in the offset longer. Only do this if you always pay the card off.
- Keep your emergency fund there. It saves interest at your loan rate while staying available.
- Put windfalls in it, such as tax refunds or bonuses.
Offset vs redraw
Both reduce interest, but an offset keeps your savings separate from the loan, while redraw holds extra repayments inside it. For anyone who might later rent out the property, an offset is usually better for tax: withdrawing from an offset doesn’t change the loan balance, whereas redrawing counts as new borrowing for whatever you use it for. See offset account vs redraw facility and how to structure investment loans for tax.
If your goal is to pay off the loan as fast as possible, an offset gives you the same interest saving as extra repayments with more flexibility. Model your own numbers with our mortgage calculator.
Frequently asked questions
How much interest does an offset account save?
It saves interest at your loan rate on the balance you keep in it. At 6.63%, every $10,000 held for a full year saves about $663. Over the life of a $600,000 loan, keeping $50,000 in the offset and making normal repayments saves around $243,000 and pays the loan off about five years early.
Is a 100% offset better than a partial offset?
Yes. A 100% offset reduces interest on every dollar in the account, while a partial offset only counts a share of it. With a 40% offset, you get less than half the saving. If you’re paying a package fee for an offset, make sure it’s a full offset with no balance cap.
Can I have multiple offset accounts?
Many lenders allow several offset accounts linked to one loan, so you can split savings, bills and spending into separate buckets while all of them reduce your interest. Check the limit on the number of accounts and any fees before you open them.
Sources
- Canstar, Average home loan interest rates, as at 2 October 2026
- ASIC Moneysmart, Mortgage offset accounts
- Australian Taxation Office, Interest expenses on rental properties
General information only. It does not consider your objectives, financial situation or needs and is not credit, tax or financial advice.