What is an offset account?

When interest rates are low, it can be a good time to look at ways you might be able to pay off your home loan faster, including increasing the amount and frequency of your repayments.

Another way to potentially bring down the balance of your loan and pay it off faster could be to use an offset account.

What is an offset account?

An offset account is an everyday bank account that’s linked to your home loan. You can deposit your salary and savings into the account and the balance is then offset against the amount owing on your home loan.

Say you have a home loan of $250,000 and $30,000 in your offset account; in this situation, you’ll only be charged interest on a loan balance of $220,000 ($250,000 - $30,000).

Because the offset account acts like an everyday account, your $30,000 is still accessible whenever you need it, even while it’s working to reduce your overall interest payments.

The advantages of an offset account essentially depend on how much money you have sitting in it and the type of offset you have. 

Things to consider

Because all offset accounts are different, there are some key questions to ask when looking at opening one.

• Is your loan eligible for an offset account? You can find this out by contacting your financial institution or, for CommBank home loans, by comparing them.
• Is 100% of the balance offset against the home loan?
• Is there a limit to the balance of the account that will be offset?
• Are there any account-keeping fees and will they negate any of the financial benefits?
• Are there any limits to the amount or types of transactions you can make?
• Will the reduced interest on your home loan be greater than the interest you would earn if the savings in the offset account were in a savings account?
• What are the key differences between an offset and a redraw facility?    
• In the event of an emergency, how easily can you access the money you put into your offset compared to your redraw facility?