An offset account is a transaction account linked to your home loan, and every dollar in it is subtracted from the loan balance before the lender calculates each day's interest. Keep $50,000 in an offset against a $600,000 loan at 6.25% and you are charged interest on $550,000. That saves about $8.56 a day, a little over $3,200 in the first year, and roughly $218,000 over a 30-year loan if the balance stays put and your repayments do not change.
The rate that money effectively earns has just gone up. The RBA lifted the cash rate to 4.60% on 29 September 2026, its fourth increase this year, and Canstar expects the average owner-occupier variable rate to reach 6.49% once lenders pass it on. Below: what an offset saves at different balances, how it compares with redraw, when fees cancel the benefit, and the redraw mistake that can cost a future landlord thousands a year. To run your own loan, use the mortgage offset calculator.
How does an offset account work?
ASIC's Moneysmart puts it simply: interest on most home loans is calculated daily, and each day your lender subtracts your offset balance from your loan balance before calculating interest. The money stays yours, and you can pay bills and use a debit card as with an everyday account.
Three details decide how much it is worth.
- Your repayment usually stays the same. On a principal and interest loan the scheduled repayment does not drop. The interest you avoid goes to principal instead, so the loan finishes early. On an interest-only loan, the interest bill itself falls.
- There is a ceiling. Macquarie's terms, for example, state that if your offset balance exceeds the loan balance, the excess is not offset and earns no interest.
- There is nothing to tax. The ATO's ruling on offset arrangements (TR 93/6) notes they are structured so that no interest is paid to you, so the benefit is not taxable income. Interest from a savings account is.
Full versus partial offset
A full, or 100%, offset counts every dollar. Some lenders offer a partial offset that counts only part of the balance. Canstar's example: on a $300,000 loan with $50,000 in a 50% offset, you are charged interest on $275,000, against $250,000 with a full offset.
Multiple offset accounts
NAB and Macquarie both allow up to 10 offset accounts on an eligible variable rate loan, so you can split money into bills, holidays and an emergency fund without losing any of the interest benefit.
Can you have an offset on a fixed rate loan?
Sometimes. Offsets are most commonly attached to variable loans, and both NAB and Macquarie link them to variable loans only, though Canstar notes some lenders do offer them on fixed rates. If you want rate certainty and an offset, a split loan, with part fixed and part variable carrying the offset, is the usual compromise.
How much does an offset account save? A table at 2026 rates
Say you have a $600,000 loan over 30 years at 6.25%, which Canstar estimates will be a competitive owner-occupier variable rate from more than 40 lenders once the September rise flows through. The repayment is $3,694 a month. Here is what different offset balances save if you leave the repayment unchanged.
| Offset balance | Interest saved in year one | Interest saved over the loan | Loan paid off sooner by |
|---|---|---|---|
| $10,000 | $643 | about $52,000 | 1 year 2 months |
| $25,000 | $1,608 | about $121,000 | 2 years 8 months |
| $50,000 | $3,216 | about $218,000 | 4 years 10 months |
| $100,000 | $6,432 | about $362,000 | 8 years 1 month |
| $150,000 | $9,648 | about $464,000 | 10 years 5 months |
The year-one figure is slightly more than the balance multiplied by the rate, because the interest you avoid goes straight to principal and compounds. The whole-of-loan column assumes the balance sits there for the entire term and the rate never moves, which no real household manages. Treat it as a ceiling.
The tax-free return
Because an offset pays you nothing taxable, compare it with a savings account on an after-tax basis. At 6.25%, here is the pre-tax savings rate you would need to match it, using 2026-27 resident tax rates plus the 2% Medicare levy.
| Taxable income | Marginal rate incl. Medicare | Savings rate needed to match a 6.25% offset |
|---|---|---|
| $18,201 to $45,000 | 17% | 7.53% |
| $45,001 to $135,000 | 32% | 9.19% |
| $135,001 to $190,000 | 39% | 10.25% |
| Over $190,000 | 47% | 11.79% |
That is the case for keeping spare cash in the offset rather than a savings account while you carry a home loan.
Offset vs redraw vs extra repayments
On the day, the maths is identical. A dollar in an offset and a dollar paid into the loan as an extra repayment both stop that dollar being charged interest. The differences are access, cost and tax.
| Offset account | Extra repayments with redraw | |
|---|---|---|
| Interest saved per dollar | Same | Same |
| Getting money out | Like an everyday account | On the lender's terms. Canstar notes it can take one or two business days, may attract a fee, and can carry minimum amounts or limits on how often you redraw |
| Cost of the feature | Some lenders charge a higher rate, an account fee or both | Some lenders charge a redraw fee |
| If the home later becomes a rental | Loan keeps its original purpose | Redrawn money is a new borrowing, judged on what you spend it on |
The redraw trap if your home becomes an investment
The ATO treats a redraw as a separate borrowing. Under Taxation Ruling TR 2000/2, interest on redrawn money is deductible only if that money is used to produce income, whatever the loan was originally for. Money withdrawn from an offset is not a borrowing at all, so the loan keeps its original purpose.
Say two couples each owe $500,000 on their home and have $150,000 spare. One keeps it in an offset. The other pays it into the loan as extra repayments. Today they are identical: both are charged interest on $350,000.
Later, both buy a new home, keep the old one as a rental and use the $150,000 as the new deposit.
- The offset couple withdraws the $150,000. The loan on the rental is still $500,000, all of it used to buy the property now earning rent. At 6.25%, the $31,250 of interest is deductible.
- The redraw couple redraws the $150,000 for a private home. Interest on that portion is not deductible, so only the interest on $350,000, or $21,875, can be claimed.
Both pay $31,250 in interest. One claims $9,375 a year less. On a 32% marginal rate that is $3,000 a year in extra tax, and the ATO expects the private and rental split to be applied for the life of the loan. Refinancing does not reset it: the ATO's rental guidance says you cannot claim interest on the portion used for private purposes, at the start or when you refinance. Its own example has a couple with $25,000 left on their old home loan who could claim interest on only that $25,000 once they rented the place out.
If there is any chance today's home becomes tomorrow's rental, park savings in an offset rather than paying them into the loan. Before you convert, check which rental deductions you can claim and whether the old place will stack up on net rental yield. From 1 July 2027, negative gearing applies only to new builds, apart from properties already held at 7:30pm AEST on 12 May 2026, and our negative gearing explainer covers who is grandfathered.
When extra repayments are the better choice
If you will never rent the home out, do not need the money back, and an offset would cost you a higher rate or a fee, extra repayments on a cheaper basic loan can come out ahead. They also remove the temptation of money sitting one tap away.
Does the rate premium cancel the benefit?
It can. Moneysmart warns that some banks charge for offset features through higher interest rates, account fees or both. In Canstar's March 2025 averages, owner-occupier basic variable loans averaged 6.41%, package loans 6.67% and standard variable loans 6.99%. Its fee data from the same month put the average annual package fee at $374, within a range of $199 to $399.
Say the offset loan costs 0.25 percentage points more than a basic loan on $600,000, close to the gap between those package and basic averages, plus a $374 annual fee. That is $1,874 a year. At 6.25%, you need an average offset balance of about $30,000 just to break even. If the only extra cost is the fee, the break-even balance drops to about $6,000.
The real question is whether your average balance clears the break-even for the loans in front of you. Ask each lender for its price with and without the offset, or have a mortgage broker lay the options side by side.
Check that your offset is actually working
In July 2026, ASIC's Report 837 found banks had paid more than $55 million in compensation for offset failures between 1 September 2023 and 31 August 2025, across eight banks covering over 70% of the home loan market. Of the failures banks identified, 55% were offset accounts opened but never linked, 22% were accounts never opened, and 14% were linked later than customers were told. Australians held $349.1 billion in offset accounts in March 2026, up 28% in two years.
The harm is invisible because, as ASIC Chair Sarah Court put it, "Loan repayments stay the same, while customers unknowingly pay more interest and take longer to repay their loan." ASIC's own example: a couple with a $750,000 loan and $50,000 in an offset that was never properly linked paid over $3,000 in extra interest in a year.
- Check the interest on your statement. It should be roughly (loan balance minus offset balance) × rate ÷ 12. On a $600,000 loan with $50,000 offset at 6.25%, that is about $2,865 a month.
- Confirm the link in your app or online banking, and make sure the offset points at the right loan account.
- Recheck after any change, including refinancing, switching products, splitting or fixing part of the loan.
- Confirm it is a full offset, not a partial one.
- Raise problems quickly and in writing, and keep the statements.
Frequently asked questions
Is an offset account worth it?
Usually, if your average balance clears the break-even for any higher rate or fee. At 6.25%, a $374 annual fee alone needs about $6,000 in the offset to pay for itself. It is worth more again if you might one day rent the home out.
How much do I need in an offset account for it to be worth it?
Divide the extra annual cost of the offset loan by its interest rate. A loan costing $1,874 a year more than a basic alternative, at 6.25%, needs an average balance of about $30,000. Below that, a basic loan with extra repayments is likely cheaper.
Is it better to put money in an offset or pay off the mortgage?
The interest saving is the same either way. An offset keeps the money accessible and protects your deductions if the home becomes a rental. Extra repayments win only when they let you use a cheaper loan and the home will stay your home.
Is the money in an offset account taxed?
No. The offset pays you no interest, so there is no income to declare. That makes a 6.25% offset worth the same as a 9.19% savings rate for someone on a 32% marginal rate including Medicare.
Does an offset account reduce my repayments?
On a principal and interest loan, generally not. The repayment stays the same and the loan is paid off sooner. On an interest-only loan, the interest charged each month falls as the offset balance rises.
Making an offset work harder
Pay your income straight into the offset and keep your emergency fund there rather than in a separate savings account. Then test what further rises would do to your repayment with the loan repayment calculator, because the cash rate has risen four times this year and the hikes have already cut how much buyers can borrow.
Finally, look at your next statement and do the interest check above. It takes five minutes and, on ASIC's evidence, it is not a formality.
This is general information, not financial or tax advice. If you are planning to rent out your current home, talk to a registered tax agent before you move money between your loan and offset.
Sources
- Reserve Bank of Australia, "Statement by the Monetary Policy Board: Monetary Policy Decision". 29 September 2026.
- Canstar, "A fourth cash rate hike in 2026: What borrowers need to know". 29 September 2026.
- ASIC, "REP 837 Offsets, out of mind: Banks fall short on mortgage offset account promises", media release "26-173MR Hidden mortgage offset failures costing Australians millions in lost interest savings" and "Check your mortgage offset account is actually saving you money". 29 July 2026.
- ASIC Moneysmart, "Mortgage offset accounts". Accessed 6 October 2026.
- Australian Taxation Office, "Interest expenses" (residential rental properties). Last updated 21 May 2026.
- Australian Taxation Office, Taxation Ruling TR 2000/2 and Taxation Ruling TR 93/6. Accessed 6 October 2026.
- Australian Taxation Office, "Tax rates: Australian resident". Last updated 13 August 2026, and "Tax reform: boosting home ownership, reforming negative gearing and capital gains tax". Last updated 29 June 2026.
- Canstar, "Redraw vs offset: What's the difference?". Updated 7 November 2024; "Home Loan and Mortgage Fees You Should Know About". Updated 28 May 2025; "Average Home Loan Interest Rates Australia", data as at 4 March 2025.
- NAB, "Multiple offset accounts", and Macquarie, "Understanding home loan offset accounts". Accessed 6 October 2026.
