What is an offset account?
An offset account links a transaction account to your variable rate home loan. It uses the money in that account to ‘offset’ your loan balance.
With a standard home loan, you pay interest on the total amount owing. But with an offset, interest is charged on the difference between your home loan balance minus the amount in your linked offset account.
This means you can pay less interest with an offset account. The more money you have in the offset account, the less interest you pay on your home loan.
How an offset account works
Say you’ve taken out a 30-year mortgage for $500,000. Now, suppose you pay an average interest rate of 5.0% p.a.
We’re going to assume you have, on average over the 30 years, $50,000 sitting in your linked account.
Over the life of your loan, interest will accrue on the balance of the loan less the $50,000 in your offset, and could save $142,000. Effectively, you end up paying off your loan sooner – your 30-year mortgage could end four years early. 1
Benefits of an offset account
Reduce your interest |
Reach more financial goals |
Increase your cashflow |
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With an offset account, every dollar in your linked transaction account saves you interest every day that it’s there. |
By leaving money in an offset account, you can continue to work towards other financial goals – such as a holiday, a new car or renovations. |
The flexibility of an offset account means you can access the money in that account at any time. While taking money out of the offset account will affect the interest you accrue, it’s comforting to know you can always access your cash. |
How to get the most out of your offset account
There are a few ways to help you maximise the benefits of an offset account.
Calculate your potential interest savings
This loan repayment calculator lets you customise a loan using several variables – loan amount, term, interest rate, and more.
You can also enter how much (on average) you’ll have in your offset account. This will show you the savings you could make—and how much sooner you could pay off your loan.
Keep as much money in your offset as possible
Since every dollar (every day) saves you interest, it makes sense to keep as much of your extra savings in your offset account as you can, for as long as possible.
Have your salary paid into your offset
Whether it’s your salary or any other deposits, having it paid into your offset account could reduce the interest you accrue on your home loan.
Take advantage of interest-free days on your credit card
By using your credit card for everyday purchases and then paying the full closing balance, or if you have a balance transfer the ‘interest free days payment’, by the due date each month, you keep your money in your offset account longer – offsetting interest on your home loan.
Tip: Set-up a direct debit from your offset account to ensure you always pay the full balance of your credit card on time.
1 Please note, this is an example only and the potential benefits you could make from using a NAB offset facility will depend on many factors including the amount of funds in your offset account, how long the funds are in your offset account, your loan balance, changes to interest rates, changes to the repayment type (e.g. interest only to principal and interest repayment or vice versa), change of loan purpose, whether you make only the minimum repayments etc.
2 A full list of eligible accounts that can operate as an interest offset account is available from NAB.
Information is current as at 24 March 2023 and is subject to change.
Source: NAB
Reproduced with permission of National Australia Bank (‘NAB’). This article was originally published at https://www.nab.com.au/personal/life-moments/home-property/pay-off-home-loan/offset-accounts
National Australia Bank Limited. ABN 12 004 044 937 AFSL and Australian Credit Licence 230686. The information contained in this article is intended to be of a general nature only. Any advice contained in this article has been prepared without taking into account your objectives, financial situation or needs. Before acting on any advice on this website, NAB recommends that you consider whether it is appropriate for your circumstances.
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