What’s an offset account?
An offset account can help you reduce the interest you pay on your home loan. It works like any normal transaction account, except it’s linked to your home loan.
Any money you have in your offset transaction account is ‘offset’ against the balance in your home loan account, reducing the amount on which interest is calculated on that day. Interest on your home loan balance is calculated daily, so the more money you can keep in your offset account each day, the more your home loan interest will be reduced.
Tips to make the most of an offset account
Keep as much money as possible in it.
This might sound obvious, but the more money you have in your offset account, the more your home loan interest will be reduced.
Get your salary paid straight into your offset account.
This way, it will be offset against your home loan from the day you get paid without you having to transfer funds to and from accounts.
Use a credit card for daily expenses.
This means you can leave more money day-to-day in your offset account, therefore ensuring you maximise the interest saving on your home loan.
To avoid being charged interest on the credit card, make sure you pay it out in full before the due date or at least pay the minimum payment to avoid any late payment fees. After all, you don’t want to cancel out any potential home loan interest savings with credit card fees.
Use more than one offset account.
Often, you can have more than one offset account, which gives you options for managing your finances the way you want to. A popular use for multiple offset accounts is to bucket your money into things like; savings, bills, holidays etc. This can help make budgeting an easier and more manageable task.
Things to consider
If you’re using a credit card, be cautious. Over-spending on your credit card can lead to financial difficulty, and not paying it off on time will incur a much higher interest rate on your credit card compared to the interest rate you pay on your home loan. This will cancel out the benefits of your offset account. You should also check the amount you pay in credit card fees, as they may be more than the benefits the credit card offers for your offset.
Make sure you check the conditions of your home loan. Depending on the loan type and the provider, you might only be able to have some of your offset account’s balance offset against your loan. Instead of 100 per cent of the money in your account offsetting your home loan, maybe only 40 per cent of the balance is taken into account. Generally, fixed rate mortgages are less likely to offer a 100 per cent offset.
While offset accounts are free for some home loan packages, for others you have to pay a monthly fee. Be sure to check your home loan contract for fee details.