An offset account is a transaction account linked to your home loan. Every dollar in it reduces the principal on which interest is calculated. It is one of the most powerful — and most underutilised — tools in Australian property finance. GeeVee breaks down exactly how to maximise yours.
How an Offset Account Works
If your loan balance is $700,000 and you have $50,000 in your offset account, you only pay interest on $650,000. At 6.1% interest rate:
| Scenario | Daily Interest | Monthly Interest | Annual Interest |
|---|---|---|---|
| No offset | $116.85 | $3,554 | $42,700 |
| $50k offset | $108.49 | $3,300 | $39,600 |
| Saving | $8.36/day | $254/month | $3,100/year |
The Salary Crediting Strategy
Credit your salary directly into your offset account the moment it arrives. Leave it there for as long as possible before paying bills. Every extra day your salary sits in the offset account reduces the interest you pay. On a $700k loan with $8,000 salary credited monthly, you save approximately $2,400/year in interest just from the timing strategy.
Offset vs Redraw — Key Differences
| Feature | Offset Account | Redraw Facility |
|---|---|---|
| Tax treatment for investors | Interest remains fully deductible | Redraw can contaminate deductibility |
| Access to funds | Instant (transaction account) | Usually 1-3 business days |
| Flexibility | Full — deposit and withdraw freely | Restricted — some lenders limit redraws |
| Best for | Investors and owner-occupiers | Owner-occupiers only |
The ATO Warning on Redraw for Investors
If you redraw funds from an investment loan for personal use, the ATO may rule that the redrawn amount is no longer deductible. This is a significant risk that catches many investors off guard. An offset account completely avoids this problem — the money never enters the loan, so deductibility is never compromised.
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