You can make deposits or withdraw from an offset account as you would with a regular transaction account.
How does it work?
For example:
If you have a home loan of $250,000 and have $10,000 in your offset account, you will only be charged interest on $240,000 of your home loan; that is $250,000 - $10,000.
Obviously, this is only for the period that the $10,000 is in your offset account. If you withdraw $2,000 from your offset account, then you would be charged interest on $242,000 as the amount in your offset account has gone down from $10,000 to $8,000.
Because the offset account acts like an everyday account, your money is still accessible whenever you need it, but in the meantime, it’s working to reduce your overall interest payments.
How you can use an offset account
Some people have their pay deposited straight into their offset account and treat it as an everyday transaction account. Others may use it as a savings account for things like holidays or renovations – or setting aside money for their tax bill.
Things to remember:
- Most lenders will charge for an offset account; this may be a monthly fee, or if your offset account is part of a package, there’ll be an annual package fee.
- Always get some professional advice to work out if you’ll be ahead in the long run. It may be worth considering whether the amount of interest you’re likely to save will be more than the fee.
- You will not earn interest on your savings in your offset account.
- The offset feature is usually only available on variable rate home loans (although some lenders may offer an offset feature on selected fixed rate home loans).
Information provided is general in nature and is not intended to influence decisions about banking products. You should always seek your own professional advice that takes into account your own personal circumstances.
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