Does an offset account reduce your loan balance?

Not directly. Your loan balance stays the same on paper — the offset only reduces the amount of interest charged. However, because you pay less interest, more of each repayment goes toward the principal, which means you pay off the loan faster.

Can you have more than one offset account?

Some lenders allow multiple offset accounts linked to the same loan, which is useful for budgeting (e.g., one for savings, one for bills, one for everyday spending). Check with your lender — this feature is not universally available.

Do offset accounts work with fixed-rate home loans?

Most fixed-rate home loans in Australia do not offer a 100% offset account. Some lenders offer a partial offset on fixed loans, but this is less common. Offset accounts are primarily a variable-rate loan feature.

Is money in an offset account guaranteed by the government?

Yes. Offset accounts held with an authorised deposit-taking institution (ADI) are protected under the Australian Government's Financial Claims Scheme, up to $250,000 per account holder per institution.

What is a Mortgage Offset Account? | Realestate Lens

Definition

Mortgage Offset Account

A mortgage offset account is a transaction account linked to your home loan. The balance in the offset account is deducted from your outstanding loan principal before interest is calculated, reducing the amount of interest you pay without locking your money away.

Offset accounts are one of the most powerful features available on Australian home loans. Unlike making extra repayments, money in an offset account remains fully accessible — you can deposit, withdraw, and spend from it just like a regular bank account. The key benefit is that every dollar sitting in the offset reduces the loan balance on which interest is charged. For a broader look at loan features, see our home loan finance guide.

How an Offset Account Reduces Interest

Most Australian offset accounts are 100% offset accounts, meaning the entire balance is deducted from your loan principal for interest calculation purposes. Some lenders offer partial offset accounts (where only a percentage of the balance is offset), but these are far less common and less beneficial.

Here is a simplified example of how a 100% offset account saves you money:

Home loan balance: $600,000
Offset account balance: $50,000
Interest calculated on: $550,000 (instead of $600,000)
Interest rate: 6.00% p.a.
Annual interest saving: approximately $3,000 per year
Estimated saving over 30 years: over $90,000 in interest and years off the loan term

The more money you keep in the offset account, the less interest you pay. Even temporary balances — such as your salary between pay cycles — contribute to the saving.

Offset Account vs Redraw Facility

Both offset accounts and redraw facilities reduce the interest you pay, but they work differently and have important distinctions.

Offset Account vs Redraw Facility

Criteria	Offset Account	Redraw Facility
How it works	Separate transaction account linked to your loan. Balance offsets your principal	Extra repayments sit inside the loan. You can withdraw (redraw) them later
Access to funds	Instant — works like a normal bank account with card access	Varies — some lenders restrict redraw, impose fees, or require minimum amounts
Tax implications (investors)	No tax issue — loan balance is unchanged, so full interest remains deductible	Redrawing for personal use can reduce the tax-deductible portion of an investment loan
Risk if lender changes terms	Your money is in a separate account you control	Some lenders have restricted or frozen redraw access in the past
Monthly fees	Some loans charge a monthly or annual package fee for offset	Usually free, but may have minimum redraw amounts
Best for	Investors, high-income earners, those wanting full flexibility	Owner-occupiers wanting a simple, fee-free way to reduce interest

Who Benefits Most from an Offset Account?

Offset accounts provide the greatest value when you consistently maintain a meaningful balance. They are particularly valuable for:

Property investors: Keeping savings in an offset rather than making extra repayments preserves the full tax deductibility of your loan interest.
High-income earners: Parking your salary and savings in an offset can save thousands each year in interest.
Self-employed borrowers: Keeping a cash buffer in the offset for tax payments or irregular income while still reducing interest daily.
Borrowers with large loans: The larger your loan, the greater the absolute dollar saving from each dollar held in the offset.

If you are unlikely to maintain more than a few thousand dollars in the account, the package fees some lenders charge for the offset feature may outweigh the interest savings. In that case, a basic loan with a free redraw facility may be more cost-effective. Compare all your options in our mortgage types explained article.

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