Offset Account Calculator for Australian Borrowers
Work out how much an offset account saves you in interest. Enter your loan balance, interest rate, remaining term and the money sitting in your offset, and this free calculator shows your monthly saving, your annual saving, and how much interest you avoid over the life of the loan.
An offset account is one of the simplest ways to make your cash work harder against an Australian home loan or investment loan. Every dollar in the account reduces the balance you pay interest on, so the savings are effectively a tax-free return at your loan rate.
Saved each month with your offset account
How Offset Accounts Work: An offset account is a transaction account linked to your home loan. The balance in your offset account is deducted from your outstanding loan balance before interest is calculated. For example, with a $500,000 loan and $50,000 in your offset account, you only pay interest on $450,000.
Tax-Free Return: Because the offset reduces the interest you pay rather than earning interest income, the savings are effectively a tax-free return equal to your home loan interest rate. At 6%, your offset balance is effectively earning a 6% tax-free return, equivalent to a significantly higher pre-tax return depending on your marginal tax rate.
Note: This calculator provides estimates based on simplified calculations. Actual savings will depend on your lender's interest calculation method, account fees, and changes to your offset balance over time. Consult a licensed financial adviser for personalised advice.
How the offset account calculator works
- 1
Enter your loan balance
Use the amount you currently owe on the loan, not the original purchase price. Interest is charged on what is still outstanding, so this is the figure the offset works against.
- 2
Add your interest rate
Put in the annual interest rate on the loan. A higher rate means each dollar in your offset saves you more, because the saving equals your rate applied to the offset balance.
- 3
Set your remaining loan term
Enter the number of years left on the loan. This is used to estimate how much interest you avoid over the full term and how many years you could shave off if the offset stays in place.
- 4
Enter your offset account balance
Add the money you keep in the account linked to the loan. This balance is subtracted from your loan before interest is worked out, so a larger balance means a larger saving.
- 5
Read your interest saved
See the interest you save each month and each year, plus the estimated total saved over the term and the time it could trim off the loan.
A worked Australian example
Say you owe $500,000 on a loan at 6.0% p.a. with 30 years remaining, and you keep $50,000 in your linked offset account. Here is how the offset changes the interest you pay.
- Monthly interest without offset ($500,000 x 6.0% / 12)
- $2,500.00
- Monthly interest with offset ($450,000 x 6.0% / 12)
- $2,250.00
- Monthly interest saved
- +$250.00
- Annual interest saved ($250 x 12)
- +$3,000.00
- Estimated interest saved over the term
- about $194,600
The $50,000 in your offset means you only pay interest on $450,000, not the full $500,000. That cuts your interest from $2,500 to $2,250 a month, a saving of $250 a month or $3,000 a year. If you keep that balance in place and direct the saving back at the loan, the calculator estimates you avoid roughly $194,600 in interest over the term and clear the loan around five years early. The exact figure depends on your lender's method and how your balance moves, so treat it as a guide.
What is an offset account?
An offset account is an everyday transaction account linked to your home loan or investment loan. Whatever sits in the account is subtracted from your loan balance before the lender works out interest. With $50,000 in offset against a $500,000 loan, you are charged interest as if you owed $450,000.
You still have full access to the money, so it can hold your salary, your savings or an emergency buffer and keep working the whole time it is there. A true offset is different from simply redrawing extra repayments, because the cash stays liquid and never reduces your contracted loan balance.
Why offset savings are a tax-free return
Money in a savings account earns interest, and that interest is taxable income you declare to the ATO. Money in an offset account earns nothing directly, but it stops you being charged interest, and avoiding an expense is not taxable. So an offset effectively returns your loan rate, free of tax.
On a 6.0% loan, a dollar in your offset saves you 6.0% in after-tax terms. For someone on a 37% marginal rate, matching that after tax would need a savings account paying close to 9.5% before tax, which no standard deposit account offers. That gap is why offset accounts are popular with Australian borrowers.
Offset accounts on investment loans
Offset accounts are useful on investment loans for a reason beyond the interest saving. Reducing the offset balance does not reduce the loan principal, so your loan interest stays fully deductible. Paying extra straight into an investment loan, or parking spare cash there and redrawing it later, can muddy the deductibility of that loan.
A common approach is to keep an investment loan as interest only with an offset, and direct spare cash into the offset rather than paying down the balance. This keeps the interest you can claim against your rental income intact while still cutting the interest you actually pay. Tax outcomes depend on your circumstances, so confirm the structure with a qualified accountant.
Offset account versus redraw
An offset and a redraw facility can produce a similar interest saving, but they are not the same. An offset is a separate account holding your own funds, which stay liquid and outside the loan. Redraw lets you pull back extra repayments you have already made into the loan, so that money has technically reduced your balance.
For an owner-occupier the practical difference is small. For an investor it can matter, because money redrawn from an investment loan is treated as new borrowing and is only deductible if used for an income-producing purpose. Offset accounts avoid that complication, though they sometimes carry a higher rate or a package fee, so weigh up the cost against the benefit.
Frequently asked questions
How does an offset account save you money?
The balance in your offset account is subtracted from your loan before interest is calculated, so you are charged interest on a smaller amount. With $50,000 offsetting a $500,000 loan at 6.0%, you pay interest on $450,000 instead of $500,000, saving about $250 a month or $3,000 a year.
Is an offset account worth it?
It usually is if you keep a meaningful balance in it, because the saving is a tax-free return at your loan rate, which beats most savings accounts after tax. The main thing to check is whether the loan charges a higher rate or an annual package fee for the offset, and whether your saving outweighs that cost.
What is the difference between an offset account and redraw?
An offset is a separate transaction account holding your own money, which stays liquid and does not reduce your loan balance. Redraw lets you take back extra repayments you have already made into the loan. The interest saving can be similar, but offset funds are easier to access and avoid deductibility issues on investment loans.
Does money in an offset account earn interest?
No, an offset account does not pay you interest directly. Instead it reduces the interest you are charged on your loan. Because you are avoiding an expense rather than earning income, the saving is not taxable, which makes it effectively a tax-free return at your loan rate.
Can I have an offset account on an investment loan?
Yes, and it is a common setup. Keeping spare cash in an offset rather than paying down an investment loan reduces the interest you pay without reducing the loan balance, so your interest stays fully deductible against your rental income. Confirm the structure with a qualified accountant for your situation.
How much should I keep in my offset account?
As much spare cash as you reasonably can, since every dollar reduces the interest charged. Many people run their salary and savings through the offset and keep an emergency buffer there too. The money stays fully accessible, so there is little downside to holding more in it.
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