Calculate how much interest and time you can save with an offset account on your Australian home loan. Compare 100% offset, partial offset, and offset vs redraw.
📖 14 min read · ⏱️ Calculator time: ~30 seconds
| Scenario | Payoff date | Total interest |
|---|
Results are estimates only. Actual figures depend on your lender's exact daily-interest calculation method — confirm with your lender. Results assume a constant interest rate; actual savings may vary if rates, repayments, fees or lender policies change.
An offset account is a everyday transaction account linked to your home loan. Instead of earning interest itself, its balance is subtracted from your loan balance before your lender calculates interest each day. A $600,000 loan with $50,000 sitting in a linked offset account is charged interest as if the loan were only $550,000 — while the $50,000 remains fully yours, accessible any time via card, transfer or ATM.
Most Australian lenders calculate loan interest daily: Daily interest = (Loan balance − Offset balance) × (Annual rate ÷ 365). This daily interest is typically totalled and charged to your loan monthly. Because the calculation happens daily, every dollar in your offset account is working from the moment it lands — your salary credited on payday starts reducing interest immediately, not at the end of the month.
A 100% offset account offsets your entire balance, dollar for dollar, against your loan — this is the standard offset product on most Australian variable rate loans. A partial offset (sometimes attached to fixed rate loans, or offered as a lower-fee "partial offset" product) only offsets a percentage of your balance — commonly 40% on some fixed-rate offset products. The calculator above lets you model either: select "Partial Offset" and set the percentage to see the reduced — but still real — benefit.
| Feature | 100% Offset | Partial Offset |
|---|---|---|
| Offset applied | 100% of balance | Often 40% (varies by lender/product) |
| Typically available on | Variable rate loans | Some fixed rate loans |
| Interest saving on $50k balance | Full effect | Roughly 40% of the full effect |
| Best suited to | Borrowers who want maximum benefit | Borrowers who want a fixed rate but some offset benefit |
Offset and redraw both let you reduce the interest you pay using your own savings — but they work differently. A redraw facility lets you make extra repayments directly onto your loan, then "redraw" that money back out later if needed. An offset account keeps your money in a completely separate, always-accessible transaction account, which is simply netted off your loan balance for interest purposes. As the Offset vs Redraw panel in the calculator above shows, putting the same amount into either produces virtually identical total interest — the real differences are practical and legal, not mathematical:
Because interest is calculated daily on the offset-reduced balance, an offset account's benefit compounds over time in two ways: first, the immediate reduction in daily interest, and second — since a smaller interest charge means more of every scheduled repayment goes to principal — the loan balance itself falls faster than it otherwise would. This is exactly what the Loan Balance chart above shows: the "with offset" line pulls away from the "without offset" line more and more steeply as the years go on, not in a straight line.
Take a $600,000 loan at 6.25% over 30 years, with $50,000 sitting in a 100% offset account and $500/month in ongoing contributions. Interest is calculated on $550,000, not $600,000, from day one. Run through the calculator above with these numbers and you'll see: roughly $352,000 in lifetime interest saved, and the loan paid off almost 8 years early — all without a single dollar of extra repayment, purely from redirecting savings into the offset account instead of a separate bank account.
Offset accounts are particularly valuable for investment property loans. Because offset funds never touch the loan itself, your loan balance — and therefore your interest deductibility — stays completely clean, regardless of how much you draw down on your offset savings for personal spending. This is a key reason many property investors and their accountants prefer offset accounts over redraw on investment loans: mixing personal redrawn funds with investment debt can create a "mixed purpose" loan, complicating your interest deduction calculations at tax time.
Offset account interest savings are not taxable income — you're simply paying less interest, not earning assessable interest, which is one reason offset can be more tax-effective than a standalone high-interest savings account for many borrowers (interest earned in a savings account is taxable at your marginal rate; interest saved via offset is not). For investment loans, keeping funds in offset rather than redraw helps preserve the deductibility of your loan interest. This is general information only, not personal tax advice — consult a registered tax agent or accountant about your specific situation.
The last line is the simplest way to estimate your saving: your offset balance, multiplied by your monthly interest rate, is roughly your monthly interest saving — assuming a 100% offset and a steady balance.
Try this yourself in the calculator above: a $450,000 loan at 6.00% over 25 years, with a $30,000 offset balance and no ongoing contributions (offset growth 0%, monthly contribution $0). What's the first month's interest saving? Using the formula above: $30,000 × (6.00% ÷ 12) = $150.00. Check the Step-by-Step Calculation panel above after entering these numbers — it should match exactly.
| Term | Meaning |
|---|---|
| Offset account | A linked transaction account whose balance reduces the interest charged on your loan. |
| 100% offset | The full account balance is offset against the loan. |
| Partial offset | Only a percentage of the account balance is offset against the loan. |
| Redraw facility | Access to extra repayments already made, held within the loan itself. |
| Effective interest rate | The rate actually being charged after accounting for the offset reduction. |
| Interest-bearing balance | The loan balance actually used to calculate interest (loan balance minus offset). |
| Deductibility (tainting) | The risk that mixing personal and investment funds in a loan can reduce the tax-deductible portion of interest. |
An offset account is one of the simplest, most effective tools available to Australian borrowers — no extra repayments required, just redirecting savings you already have into the right account. Use the calculator above to see your own numbers across 100% vs partial offset, compare offset against redraw, and track how your offset balance and loan balance move together over the life of your loan. Pair it with our Mortgage Payoff and Refinance calculators to see the complete picture of your home loan strategy.
What is an offset account?
An offset account is an everyday transaction account linked to your home loan whose balance is subtracted from your loan balance before interest is calculated each day — reducing the interest you pay without reducing the loan itself.
How does an offset account work?
Most lenders calculate interest daily as (loan balance − offset balance) × (annual rate ÷ 365). Money sitting in your offset account reduces the balance used for this calculation, lowering your interest charge from the day it's deposited.
How much does an offset account save?
It depends on your offset balance, interest rate, and how long the balance stays in the account. As a rough guide, monthly saving ≈ offset balance × (annual rate ÷ 12) for a 100% offset — use the calculator above for your exact figures.
Is an offset account worth it?
For most borrowers who keep a meaningful, consistent balance in the account, yes — it's one of the most effective ways to reduce interest without extra repayments. If your balance is usually very low, the benefit may not outweigh any account-keeping fees.
What is a 100% offset account?
A 100% offset account offsets your entire balance, dollar for dollar, against your loan balance for interest calculation purposes. It's the standard offset product on most Australian variable rate home loans.
What is a partial offset account?
A partial offset account only offsets a percentage of your balance (commonly around 40% on some fixed-rate products) — still beneficial, but proportionally less than a 100% offset with the same balance.
What's the difference between offset and redraw?
Both can produce similar interest savings for the same amount of money, but offset keeps funds in a separate, instantly accessible account, while redraw pays extra funds directly into the loan. Offset also avoids the tax-deductibility risks redraw can create on investment loans.
Does an offset account pay interest?
No — an offset account itself doesn't earn interest. Its benefit comes entirely from reducing the interest charged on your linked loan, which is often more tax-effective than earning taxable interest in a separate savings account.
Is offset account interest saving taxable?
No — reducing your interest expense isn't assessable income, unlike interest earned in a standard savings account, which is taxed at your marginal rate. This is general information only; confirm your specific situation with a tax agent.
Can I have an offset account on a fixed rate loan?
Sometimes, though it's less common and often only partial offset rather than 100%. Many fixed rate loans don't offer an offset account at all — check your specific loan's features.
How is offset account interest calculated?
Daily, using: (loan balance − offset balance) × (annual rate ÷ 365), then typically totalled and charged monthly. See the Formula Sheet above for the full set of calculations.
Do all banks offer offset accounts?
Most major and mid-tier Australian lenders offer an offset account option, usually attached to a variable rate "package" home loan, sometimes for an annual fee. Basic, low-fee loans often don't include one.
Does an offset account reduce my minimum repayment?
Generally no — your scheduled minimum repayment usually stays the same. The benefit shows up as a shorter loan term (or, if you choose, you could ask your lender to recalculate a lower minimum repayment instead).
Can I have multiple offset accounts?
Some lenders allow multiple offset accounts linked to a single loan (for example, separate accounts for different purposes), each contributing to the total offset balance. Not all lenders support this — check your product's terms.
What happens to my offset account if I refinance?
Your existing offset balance stays with your current account when the old loan is discharged — it doesn't automatically transfer. You'll need to move those funds into the new loan's offset account (if it has one) once the refinance settles.
Is an offset account better than paying extra off my mortgage?
For interest purposes they're very similar — see the Offset vs Redraw panel above. Offset generally wins on flexibility (instant access to your money) and on investment loans (no tax-deductibility risk).
Do offset accounts have fees?
Often yes — many offset accounts come bundled with an annual "package" fee (commonly $300-$450/year) that also includes other benefits like a discounted rate or fee waivers on other products. Make sure the interest saved comfortably exceeds any fee.
Can I use my offset account like a normal transaction account?
Yes — that's the point. Most offset accounts come with a debit card, online banking, direct debits and salary crediting, functioning as your everyday account while the balance works to reduce your loan interest.
Does the size of my offset balance matter more than timing?
Both matter — since interest is calculated daily, a large balance sitting there consistently saves more than the same average balance that fluctuates wildly. Keeping funds in offset as early and consistently as possible maximises the benefit.
Is an offset account the same as a mortgage offset mortgage in other countries?
The concept (linking savings to reduce loan interest) exists in several countries under similar names, but exact rules, tax treatment and product structures vary — this calculator and content are specific to the Australian market.
Can investors benefit more from offset than owner-occupiers?
Investors particularly benefit from the tax-deductibility protection offset provides (see Investment Property Considerations above) — the interest-saving mechanics themselves work the same way for both owner-occupiers and investors.
What is the effective interest rate shown by this calculator?
It's your advertised rate scaled down by the proportion of your loan currently offset — for example, a 6.25% rate with a balance 10% offset produces an effective rate of about 5.63% on the interest actually charged that month.
Does my offset balance grow the loan is paid off faster automatically?
Yes, indirectly — as more of each repayment goes to principal (since less goes to interest), your loan balance falls faster, which is why the "with offset" line in the Loan Balance chart above curves away from the baseline over time rather than staying a fixed distance apart.
Should I keep my emergency fund in my offset account?
Many Australians do exactly this — it earns you an effective, tax-free "return" equal to your mortgage rate while remaining fully accessible in an emergency, which is often better than a separate savings account paying taxable interest at a lower rate.
Can I offset a loan I don't live in (investment property)?
Yes — offset accounts work the same way on investment property loans as on owner-occupied loans, and are often preferred over redraw for investment loans specifically because of the tax-deductibility benefits discussed above.
Does the offset growth rate in the calculator represent investment returns?
No — it represents your monthly contribution amount growing over time (for example, from salary increases), not investment returns, since the offset account itself doesn't earn interest or investment growth.
How accurate is this offset account calculator?
It uses the standard daily-interest offset formula used by Australian lenders and has been tested against manual calculations. Your lender's exact daily compounding and rounding methods may produce small differences — always confirm exact figures with your lender.
What is the minimum offset balance worth having?
There's no fixed minimum — any balance saves some interest. The question is whether the saving exceeds any account-keeping fee; on a typical $350/year package fee and a 6% rate, you'd need roughly $6,000 sitting in offset just to break even on the fee.
Can I close my offset account without affecting my loan?
Yes, though you'll lose the offset benefit going forward and your interest cost will increase to the full, un-offset rate — check whether your loan reverts to a different (sometimes higher) rate without the linked offset package.
Does an offset account affect my credit score?
No — an offset account is a transaction account, not a credit product, so its balance and usage don't directly affect your credit score the way credit card utilisation does.
Can I have an offset account with no linked loan?
No — offset accounts are specifically linked to a home loan; without a linked loan there's nothing for the balance to offset, and the account would just function as an ordinary (interest-paying or non-interest-paying) transaction account.
Do joint offset accounts work the same way?
Yes — a joint offset account linked to a joint (or even an individual's) home loan offsets the full combined balance the same way a single-holder account would, subject to the lender's specific product terms.
What happens to unused offset benefit if my balance exceeds my loan?
Once your offset balance equals or exceeds your loan balance, no further interest is charged — but any offset amount above the loan balance doesn't earn interest or provide any further benefit, so it's usually better invested elsewhere at that point.
Is an offset account the same as an offset mortgage?
"Offset mortgage" and "home loan with an offset account" refer to the same concept in Australia — a standard home loan with a linked offset transaction account, as opposed to a fundamentally different loan structure.
Can I set up automatic transfers into my offset account?
Yes — most borrowers link their salary directly to their offset account and set up automatic transfers for additional savings, maximising the balance (and therefore the interest saving) as consistently as possible.
Does offsetting reduce my loan term or my repayment amount?
By default, it reduces your loan term (you pay off faster while your scheduled repayment stays the same) — though you can ask your lender to instead recalculate a lower ongoing repayment if you prefer that benefit.
What's the difference between offset and a mortgage redraw calculator?
A redraw calculator models extra repayments made directly to the loan; this offset calculator models funds kept in a separate linked account. Use our Mortgage Payoff Calculator to model redraw/extra repayments specifically.
Can I use this calculator for a car loan or personal loan offset?
Offset accounts are almost exclusively a home loan feature in Australia — car loans and personal loans typically don't offer offset accounts, so this calculator is designed specifically for mortgage offset scenarios.
Does the calculator account for rate changes over the loan term?
No — it assumes a constant interest rate for the full projection, consistent with how a single-scenario comparison is normally presented. Rerun the calculator with a new rate to see the effect of a rate change on your offset benefit.
Should I choose an offset account or a lower interest rate with no offset?
This depends on your typical offset balance — a slightly higher rate with a genuine 100% offset can easily beat a lower rate with no offset if you consistently keep meaningful savings in the account. Run both scenarios through the calculator above to compare.
Can I model irregular offset contributions?
The calculator assumes a consistent monthly contribution (optionally growing annually) for simplicity. For irregular contributions or lump sums, try adjusting your starting offset balance to reflect an expected average, or run multiple scenarios.
Does an offset account help with borrowing power for a new loan?
Not directly — borrowing power is assessed on income, expenses and existing debt, not offset balances. However, a strong offset balance can indicate genuine savings capacity, which lenders view favourably in serviceability assessments.