Why does everybody rave about 100% offset accounts?

What is an offset account?

An offset account is a separate account to your home loan, which is linked in the banks computer systems, so that the balance held in the offset account, is daily, offset against the interest accruing on your home loan. For example, if you set $10,000 into your home loan offset account for a month, on a loan of 6.90% interest, you would save around $57 interest for that month. The effect of placing this amount directly into the redraw account of the loan is exactly the same (for a variable loan) interest  savings.

Why use an offset and not redraw

100% offset accounts are normally easier to access, and can be run as transaction accounts for your income, bills, and other needs. Some banks offer unlimited offset accounts where you can run lots of offset accounts against the same home loan. Offset accounts also help you to quarantine the extra repayments. Further to this, they may offer you savings in future should you decide to turn an owner occupied home loan into an investment, read more on this here.

Why do offsets and fixed rates not mix

The banks do not have functionality to offer offset accounts on fixed rates. This is largely because fixed rates are bought at set wholesale prices for and paid for in advance. Any offset made against this would be a loss by the bank and therefore is not a financially viable product for the banks. 

Why not just put my money into a savings account or term deposit and earn interest?

When you 'save' money in terms of less interest, the tax office doesn't ask for a slice of your savings. However, the moment you put money into an interest bearing account, you will need to declare this in your tax return and are likely pay tax on it at your top marginal tax rate. For many this is 32c in the dollar, so your savings are quickly eroded by the tax man.


How do I get an offset account

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