The mechanism
It is a transaction account linked to your home loan. Whatever sits in it is subtracted from the balance you are charged interest on, without ever leaving your control.
The mechanism
A mortgage offset account is a transaction account linked to your home loan, generally available with a variable rate loan. The balance in the offset account reduces the amount of your loan that is charged interest.1 Hold $20,000 in an offset against a $500,000 loan and you are charged interest on $480,000.
The part people miss is what happens next. Your repayment stays exactly where it was. Because the interest portion of that repayment shrank, the rest of it goes to principal, and the loan is retired earlier than the schedule says. You did not pay a cent extra. You simply stopped paying interest on money you already had.
The more money you keep in your offset account, and the longer it stays there, the more interest you can save.1 A balance that arrives on payday and is gone by the weekend is worth a fraction of the same average balance left alone. The offset calculator puts a figure on both.
1 Moneysmart (ASIC), Mortgage offset accounts, retrieved 28 July 2026.
The comparison
These two get confused constantly, and the difference only matters on the day you need the money back.
An offset account is like a separate transaction account linked to your mortgage, and your savings reduce the amount of your loan that gets charged interest. A redraw facility is different: extra repayments you make go straight onto the loan, and you may be able to withdraw those extra repayments if you need to.2
With an offset, the money never left your account. It is still yours, you can spend it from a card, and no one has to approve anything. With redraw, the money has already been paid to the lender and getting it back is a request. Lenders have reduced redraw limits and changed redraw terms before, generally with notice, but the point stands: one of these is your money and the other is your lender's willingness.
The interest saving is broadly the same either way. Choose on access, not on arithmetic.
2 Moneysmart (ASIC), Mortgage offset accounts, retrieved 28 July 2026.
Against a savings account
An offset saves you interest at your home loan rate. A savings account earns you interest at the deposit rate, and then you pay tax on what it earns. Since home loan rates sit well above deposit rates for most borrowers, and the offset saving is not taxable income, the offset usually wins before tax is even considered. The average rate on outstanding owner occupier home loans was 6.20% in May 2026, per the RBA's Table F6 series.3
The exception is the fee. Offsets are usually bundled into a package with an annual charge, so a small balance can genuinely be worse off in an offset than in a no-fee savings account.
3 Reserve Bank of Australia, Statistical Table F6, data to 31 May 2026, retrieved 26 July 2026.
Common mistakes
The test
One line of arithmetic answers this. Multiply the balance you typically keep by your interest rate. That is roughly what the offset saves you in a year. Then compare it to the annual package fee.
Commonwealth Bank's Home Loan Wealth Package, for example, carries a non-refundable annual fee of $395 payable in advance.4 At a 6% interest rate, you would need to hold roughly $6,600 on average for the offset to cover that fee alone. Below that, the package is costing you money for the privilege of saving less than it charges.
If you hold a genuine emergency fund, run your salary through the account, or are saving toward something a year or two out, the balance is real and the offset earns its keep comfortably. If your account balance is near zero the day before each payday, it almost certainly does not.
Worth checking either way: the fee is a certainty and the saving is not. If you are reviewing this, it is worth reviewing the rest of the loan at the same time, because a package fee attached to an uncompetitive rate is two problems, not one.
4 Commonwealth Bank, Home Loan Wealth Package, fee current as at 26 July 2026.
Questions
It is a transaction account linked to your home loan, and its balance reduces the amount of the loan that gets charged interest. Hold $20,000 against a $500,000 loan and you are charged interest on $480,000. Your repayment does not change, so the money you would have paid in interest goes to principal instead and the loan finishes sooner.
They save you a similar amount of interest, but access differs. An offset is a separate transaction account, so the money is yours to move at any time. Redraw is extra repayments already made onto the loan, and a lender can change redraw terms or limits. If you may need the money back, an offset is the safer of the two.
It depends on your balance and the rate. An offset typically sits inside a package with an annual fee, so the interest it saves has to beat that fee before it is worth anything. As a rough test, the saving is your average balance multiplied by your interest rate. At 6%, roughly $6,600 sitting there covers a $395 package fee.
Sometimes, but usually only in a limited form. Many lenders offer offset accounts only on variable rate loans, and those that allow one against a fixed rate often cap the offset or make it partial. If an offset matters to you, check what happens to it before fixing rather than after.
A full offset reduces the interest charged dollar for dollar against your balance. A partial offset only counts a proportion of the money you hold, so $20,000 in a 50% partial offset behaves like $10,000. Most Australian offset accounts attached to variable loans are full offsets, but the product schedule is the only way to be sure.
Sources
Market figures are point in time published figures, checked each time this page is reviewed.
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