What is an offset account?

An offset account is a savings or transaction account held at the same lender as your home loan. Money in the account is "offset" against your loan balance when interest is calculated, meaning you only pay interest on the difference between your loan and your offset balance.

For example, if you have a $400,000 mortgage and $50,000 in an offset account, interest is charged only on $350,000. A 100% offset account provides this full dollar-for-dollar reduction. Some lenders offer partial offset accounts (such as 50% offset) where only part of your balance reduces the loan balance, but these are less common.

The key benefit is tax efficiency: interest saved on a home loan is not taxable income, whereas interest earned on a standard savings account is. This makes offset accounts particularly useful for holding emergency funds or regular savings while working toward loan reduction.

Offset accounts differ from redraw facilities in an important way. With a redraw, you draw down extra payments you have made on your loan, reducing the loan balance temporarily. An offset account keeps your money separate and liquid, earning no interest but reducing interest charged. You can typically access offset funds at any time without penalties, whereas redraw terms depend on the lender's conditions. A mortgage broker in Perth can explain which option suits your financial situation.