Offset account? What is it?

Posted on: 22.02.2016

Today i want to focus on the benefits of an offset account. Each of my current clients would know how much I recommend almost everyone have an offset account. It doesn’t cost you a cent and can save you thousands. This is a lengthy explanation but hopefully you understand it once you have finished reading.

What is an offset account?

Offset is a feature that you can add to your variable rate home loan. It links an everyday banking or savings account to your loan, and uses your account balance (the money that you have in the bank) to offset your home loan balance (the amount that you owe the bank).The more money you have in your linked everyday banking account, the less interest you pay on your home loan.

For example, if you have a $330,000 mortgage, and you have $10,000 sitting in your offset account you will only pay interest on a $320,000 mortgage. Keeping in mind that interest is calculated daily, so i recommend having your pay go into the offset account and even if you are left with nothing in the offset account after 2 weeks or 2 days you have still saved interest over that period. Through most lenders you will receive card access, and the account is fully transactional, so the account can act as an everyday account for you whilst saving you interest and money!

How does an offset account compare to a term deposit or savings account?

Depending on your own situation this can vary. In almost 100% of cases the offset account is the better option. The 2 main reasons for this are that usually the interest rate for the home loan consistently sits at a higher interest rate (in turn saving you more interest/money), and secondly with a term deposit or high interest savings account you will pay tax on the interest that you earn. With an offset account as your saving interest you are not subject to paying any tax.

If you have any questions or want to check that your home loan is structured correctly please get into contact with me. kirsty.gray@uprosper.com.au or 0422 417 108