Mortgage Offset Accounts: How Much Interest They Save

An offset account is one of the simplest ways to cut the interest on a home loan without locking your money away. It's also a feature lenders sometimes charge for, so it's worth knowing what it's really worth to you. This guide walks through the maths with example numbers and the checks Moneysmart recommends, as read on 29 October 2026.

HomeLoansCalculator.au is a general information site run by Dominet BV. This page is general information only and is not financial advice. It does not consider your objectives, financial situation or needs. We are not a lender or a mortgage broker and we don't recommend any loan. Check with a licensed professional or the lender before you act. Figures were checked on 29 October 2026. Read our general information notice. Interest savings in our examples assume a steady balance and an unchanged rate, which real life rarely gives you.

How an offset account works

Moneysmart describes a mortgage offset account as a transaction account linked to your home loan, generally available with variable rate loans. The balance in the account reduces the part of the loan that's charged interest.

You use it like a normal bank account. Your pay can go in, bills can come out and you can use a debit card. Each day, the lender subtracts the offset balance from the loan balance before working out interest. The more you keep there, and the longer it stays, the more interest you save.

Two details trip people up:

• The account doesn't earn interest. Your money "earns" by reducing interest on the loan instead. Moneysmart's deposit guide makes the same point.
• Your repayment usually stays the same. Because less goes on interest, more of each repayment reduces the balance. That's how the loan finishes early.

Worked examples

All examples use a $600,000 loan over 30 years at an example rate of 6.5%, with a monthly repayment of $3,792.41. The rate is not a market rate. We assume the offset balance stays the same for the whole loan and the repayment doesn't change.

Example 1: the first month

Without an offset, the first month's interest is $600,000 × 6.5% ÷ 12 = $3,250.00.

With $50,000 in offset, interest is charged on $550,000, which is $2,979.17. The saving is $270.83 that month, and that amount goes toward the balance instead.

Example 2: over the life of the loan

The savings grow quickly because each dollar in offset cuts interest every single day, and the shorter term means fewer years of interest overall.

Example 3: the same idea on a different loan

Moneysmart's own illustration uses a $750,000 loan with $50,000 in offset, so interest is charged on $700,000. In its pay off your mortgage faster guide, the example is a $500,000 loan with $20,000 in offset, so interest is charged on $480,000. The principle is identical whatever the size.

Our offset calculator lets you enter a starting balance and a monthly top-up, which is closer to how most people's offset balance actually moves.

Offset versus redraw

Both can cut interest. They work differently.

At the same rate and the same amount of money, an offset and a redraw save roughly the same interest. The difference is mainly access and cost. Moneysmart says to check your lender's fees, rate and access rules before deciding you need either.

When an offset may not be worth it

Moneysmart lists the signs. An offset may not be worth it if you usually keep a low balance, the loan has higher fees to include an offset, and the rate is higher than similar loans without one. It gives a rough guide that if your balance will always be low, for example under $10,000, it may not be worth paying for.

Example 4 (example figures). Suppose a loan with an offset charges a package fee of $395 a year. At an example rate of 6.5%, a steady offset balance of about $6,077 saves roughly $395 a year in interest ($6,077 × 6.5% ≈ $395). If you'd normally keep less than that, the fee costs more than the offset saves. If the offset loan's rate is also higher, the break-even balance rises further.

Check that it's actually linked

Moneysmart reports that an ASIC review found some banks failed to manage offset accounts properly, so customers paid more interest than they should have. Repayments stay the same, so you might not notice. Its four actions, in short:

1. Check in your app, online banking or statements that the offset is linked to the loan.
2. If you can't see interest savings, ask your bank.
3. Check it's re-linked after you refinance or switch products.
4. Act quickly if something looks wrong.

Moneysmart's example shows the cost of getting this wrong. A couple with a $750,000 loan at 6.25% and a $50,000 average offset balance paid over $3,000 extra in one year because the offset was never linked.

Credit cards and offsets

Some people pay everything on a credit card, keep their pay in the offset, and clear the card in full each month. Moneysmart says this only works if you're sure you can pay the card in full every month. It notes the average credit card rate was over 18% as at May 2026, much higher than home loan rates.

What this means for you

• Look at what your offset balance really does over a year, not just its peak after payday.
• Compare the yearly cost of the offset (fees plus any rate difference) with the interest you'd save.
• Most offsets come with variable rates. If you're fixing, check whether an offset is available at all (see fixed versus variable).
• If you've refinanced, check the link. See our refinancing costs guide.
• If you don't need easy access, compare with making extra repayments into a redraw.

Try your own numbers in the offset calculator, or go back to the calculators hub.

Frequently asked questions

Does money in an offset account earn interest?

No. It reduces the interest charged on your home loan instead. Because home loan rates are usually higher than savings rates, and you don't pay tax on interest you avoid, this can work out better than a savings account for some people. Check your own tax position with a professional.

How much does $50,000 in offset save?

At an example rate of 6.5% it cuts interest by about $271 a month at the start. On a $600,000 30 year loan, keeping $50,000 there the whole time saves roughly $234,000 and pays the loan off about five years early, if repayments stay the same.

Is an offset better than a redraw?

For the same money at the same rate, the interest saving is similar. An offset is usually easier to access. A redraw may have limits or fees. The right choice depends on cost and how you use your money.

Can I have an offset with a fixed rate loan?

Moneysmart says offsets are generally available with variable rate loans. Some lenders offer them on fixed loans, sometimes with limits. Ask the lender and check the Key Facts Sheet.

How do I check my offset is working?

Look for interest savings in your app or statements, or ask your bank to confirm the link. Moneysmart recommends checking again after any refinance or product switch.