What Is an Offset Account?
How offset accounts reduce your home loan interest — and how they compare to redraw.
How an offset account works
An offset account is a transaction account linked to your home loan. Instead of earning interest on your savings, the balance in the offset account reduces the loan balance on which interest is calculated — dollar for dollar.
Example
- Home loan balance: $500,000 at 6.00% p.a.
- Offset account balance: $50,000
- Interest is calculated on: $450,000
- Annual interest saving: ~$3,000
The $50,000 stays in your account — fully accessible — while saving you 6.00% p.a. interest that you'd otherwise pay to the bank.
Because home loan interest rates are higher than savings account rates, the effective return on money sitting in an offset account is better than putting the same money in a savings account. On a 6% home loan, every dollar in offset saves 6% p.a. — tax-free, because it's a cost reduction rather than income.
Offset account vs redraw facility
Both reduce the interest you pay, but they work differently. Most no-frills home loans include a redraw facility instead of an offset account — it's important to understand the difference before choosing.
| Feature | Offset account | Redraw facility |
|---|---|---|
| How it works | Separate transaction account; balance offsets loan | Extra repayments sit inside the loan; can be redrawn |
| Access to funds | Instant — debit card, BPAY, transfers | Usually 1–3 business days; some online same-day |
| Lender can restrict access? | No — your money, your account | Yes — lenders can limit or suspend redraw |
| Tax considerations | Better for investment properties (preserves loan balance for tax deduction) | Redrawn funds for non-investment use may affect deductibility |
| Interest saving | Same, dollar for dollar | Same, dollar for dollar |
| Typical cost | Often requires higher rate or annual fee | Usually free on basic variable loans |
For most owner-occupiers, the flexibility of an offset account is worth paying for — especially if you keep a large balance. For investment properties, offset is often preferred over redraw for tax reasons.
Which lenders offer offset accounts?
Not all competitive variable rate loans include offset. Here's how the current market compares:
| Lender | OO P&I rate | Offset | Notes |
|---|---|---|---|
| Up Home | 5.70% p.a. | ✓ Free 100% | Best offset deal on the market — $0 fees |
| Macquarie | 5.84% p.a. | Optional | Offset Home Loan product available; higher comp rate due to annual fee |
| loans.com.au | 6.04% p.a. | +0.10% p.a. | Offset sub-account costs 0.10% p.a. extra on rate |
| CommBank | 6.34% p.a. | ✓ Multiple | Wealth Package includes multiple offset accounts; $395/yr fee |
| Reduce Home Loans | 5.94% p.a. | ✗ No offset | Redraw only — lowest-fee non-bank option |
| HSBC | 5.99% p.a. | ✗ No offset | Home Value Loan — no offset, no annual fee |
| Unloan | 5.69% p.a. | ✗ No offset | Refinance only; P&I only; no offset |
| Pacific Mortgage Group | 5.59% p.a. | ✗ No offset | Lowest rate; no offset account |
Rates verified May 2026. Variable — confirm current rates before applying. Compare all home loan rates →
Is an offset account worth it?
The answer depends on how much you keep in the account relative to the rate premium you pay for it.
Break-even example
If a lender charges 0.10% p.a. extra for an offset account on a $500,000 loan, that costs $500/year. To break even, you'd need to keep at least $8,333 in offset at 6.00% p.a. ($8,333 × 6% = $500). Any balance above that, and the offset account saves you money.
If you have a large emergency fund, salary credits, or business revenue sitting in a transaction account, routing it through an offset account instead of a savings account is almost always worthwhile — the interest saving on the loan exceeds what a savings account pays, and it's tax-free.
For borrowers with minimal savings or tight cash flow, a no-frills loan with a free redraw facility achieves the same interest saving without the premium.
Offset accounts and investment properties
For investment properties, offset accounts have an important tax advantage over redraw. If you redraw funds from an investment loan for personal use (e.g., a holiday or home renovation), the redrawn amount may no longer be deductible — the ATO looks at how the money is used, not just the original loan purpose.
With an offset account, your savings sit outside the loan — the loan balance never changes, so the full interest on the original loan balance remains deductible. This is why most property investors and accountants prefer offset over redraw for investment loans.
FAQs
What is an offset account?
An offset account is a transaction account linked to your home loan. The balance in your offset account reduces — or 'offsets' — the loan balance on which interest is calculated. For example, if you have a $500,000 loan and $50,000 in your offset account, you only pay interest on $450,000. The money remains fully accessible at any time.
What is the difference between an offset account and a redraw facility?
Both reduce your interest, but they work differently. An offset account is a separate transaction account — your money stays accessible like a normal bank account. A redraw facility lets you access extra repayments you've made above your minimum, but the money is technically part of the loan and lenders can restrict access. Offset accounts offer more flexibility; redraw facilities are simpler and often come at no extra cost.
Does an offset account save you money?
Yes — if you keep a significant balance in your offset account. The interest saving equals your offset balance multiplied by your home loan interest rate. On a 6% p.a. loan, $50,000 in offset saves approximately $3,000 per year in interest. The larger your average offset balance relative to your loan, the greater the benefit.
Do all home loans include an offset account?
No. Most basic or no-frills variable home loans do not include an offset account — they often provide a redraw facility instead. Lenders that include a free 100% offset account include Up Home (5.70% p.a.) and CommBank Wealth Package. Some lenders charge an annual fee or a higher rate for offset — for example, loans.com.au charges +0.10% p.a. for an offset sub-account.
What is a 100% offset account?
A 100% offset account means every dollar in the account fully offsets your loan balance — there is no cap or partial offset. Some older or cheaper products offer partial offset accounts (e.g., 40% of your balance offsets), but 100% offset is now the standard for any account marketed as an offset account.
Related
- Up Home Variable Review — 5.70% p.a. with free 100% offset
- Reduce Home Loans Review — 5.94% p.a., redraw only (no offset)
- Macquarie Home Loan Review — Basic and Offset products compared
- Best Home Loans 2026 — all top picks ranked by rate
- Compare all home loan rates
This page is for general information only and does not constitute financial or tax advice. Consult a qualified adviser before making borrowing decisions. Rates verified May 2026.