Offset Account Calculator

See how much interest you can save by keeping your savings in an offset account

Loan & Offset Details

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%
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Your current savings in the offset account
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How much you'll add to offset each month
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Used to calculate effective pre-tax return
Debt-Free Date
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Effective Return
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Pre-tax equivalent
Interest Saved
$0
Time Saved
0 years
With Offset
$0
Without Offset
$0

Interest Savings Over Time

Loan Balance Comparison

How Offset Accounts Work

Understanding the power of offset accounts for Australian mortgages

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What is an Offset Account?

An offset account is a transaction account linked to your home loan. The balance in this account "offsets" your loan balance when calculating interest, reducing the amount of interest you pay.

Example: If you have a $500,000 loan and $50,000 in your offset account, you only pay interest on $450,000.
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Daily Interest Calculation

In Australia, home loan interest is calculated daily based on your outstanding balance. This means every dollar in your offset account immediately reduces your interest from that day forward.

Key Benefit: Unlike making extra repayments, money in your offset account remains accessible while still saving you interest.
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Tax Benefits

Interest saved through an offset account is more valuable than interest earned in a regular savings account because you don't pay tax on the savings.

Example: Saving $3,000 in interest is equivalent to earning ~$4,200 in a savings account (at 30% tax rate).
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Flexibility & Access

Unlike extra repayments which may be locked in or require redraw fees, your offset account funds are always accessible. You can deposit and withdraw freely while still saving interest.

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Maximize Your Savings

To get the most from your offset account:

  • Deposit your salary directly into it
  • Keep your emergency fund there
  • Pay bills from it just before they're due
  • Maintain the highest average daily balance
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Offset vs Extra Repayments

Offset Account: Flexible, accessible, tax-effective
Extra Repayments: Permanent reduction, may have redraw restrictions

Best Strategy: Use offset for emergency funds and short-term savings; use extra repayments for permanent debt reduction.

💡 How Offset Accounts Work

🔑 Key Concept

Monthly deposits to your offset account do NOT pay your loan. They go into your savings account, which reduces the interest charged on your loan while keeping your money accessible.

How It Works Each Month:

  1. Add deposit to offset: Your $500/month goes into your offset savings account
  2. Calculate interest: Interest is charged on (Loan Balance - Offset Balance) instead of the full loan
  3. Make same payment: You still make your regular fixed monthly payment
  4. More goes to principal: Because interest is lower, more of your payment reduces the loan

Example:

Without Offset

Loan: $500,000

Interest: $2,708/month

Principal paid: $452/month

With $50k Offset

Effective: $450,000

Interest: $2,438/month ✓

Principal paid: $723/month ✓

Benefits:

  • Pay less interest: Interest calculated on reduced balance
  • Pay off faster: More of each payment goes to principal
  • Keep money accessible: Unlike extra payments, you can withdraw if needed
  • Tax-free savings: Offset savings are effectively tax-free (no interest earned to tax)

Note: This calculator assumes you make the same fixed monthly payment throughout. The offset balance grows separately from your loan payments, reducing interest while keeping your savings accessible.

📚 What is an Offset Account?

An offset account is a transaction or savings account linked to your home loan. The balance in this account "offsets" your loan balance when calculating interest, without actually reducing the loan principal.

Common Questions:

Can I withdraw money from my offset account?

Yes! That's one of the main benefits. Unlike making extra payments directly to your loan, money in an offset account remains accessible for emergencies or opportunities.

Do I still need to make my regular loan payments?

Yes! Your regular monthly loan payment is separate and must still be made. The offset account only reduces the interest portion of your payment.

Is an offset account better than a redraw facility?

Offset accounts typically offer more flexibility and easier access to your funds. Redraw facilities may have restrictions, fees, or affect your loan structure. Consult your lender for specific comparisons.

What's the "Pre-Tax Equivalent Return"?

This shows what interest rate you'd need to earn on a savings account (after tax) to match the benefit of your offset. For example, if your loan rate is 6.5% and your tax rate is 32.5%, you'd need to earn 9.6% on a savings account to match the offset benefit!