Offset Account Maths: Dollar-for-Dollar Savings Modelled
ADS Team
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July 22, 2026
about 2 months ago
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In short: Every dollar in a 100% offset account reduces the balance your lender charges interest on, dollar for dollar. On a $750,000 loan at 6.5%, holding $50,000 in offset saves about $3,250 of interest in the first year and, if left there, cuts roughly three years and four months off a 30-year term.
Key takeaways
- An offset saves at your loan rate — 6.5% in these examples — with no tax payable on the benefit.
- To match a 6.5% offset, a savings account would need to pay about 9.6% before tax for someone on the 32.5% marginal rate.
- $50,000 offset against $750,000 saves $3,250 in year one and about $187,000 over 30 years if maintained.
- A partial offset only credits a portion of the balance and is worth materially less than a 100% offset.
How does the saving actually work?
Interest is charged on the loan balance minus the offset balance. With $750,000 owing and $50,000 in offset, the lender charges interest on $700,000.
One month of interest at 6.5%:
- Without offset: $750,000 × 0.065 ÷ 12 = $4,063
- With $50,000 offset: $700,000 × 0.065 ÷ 12 = $3,792
- Saving: $271 a month, or $3,250 in the first year
Your repayment does not change. The saved interest is redirected to principal, so the loan shortens.
What is each offset balance worth?
Against a $750,000 loan at 6.5% over 30 years, assuming the balance stays put:
| Offset balance | Year 1 interest saved | Term reduction | Total interest saved |
|---|---|---|---|
| $10,000 | $650 | ~9 months | ~$43,000 |
| $25,000 | $1,625 | ~1 yr 9 mo | ~$101,000 |
| $50,000 | $3,250 | ~3 yr 4 mo | ~$187,000 |
| $100,000 | $6,500 | ~6 yr 1 mo | ~$322,000 |
Why does it beat a savings account?
Interest earned on savings is taxable income. Interest saved through an offset is not income at all, so there is nothing to tax.
To match a 6.5% offset, a savings account must pay:
| Marginal tax rate | Required savings rate to match 6.5% offset |
|---|---|
| 19% | 8.02% |
| 32.5% | 9.63% |
| 37% | 10.32% |
| 45% | 11.82% |
No at-call Australian deposit account pays those rates in 2026, which is why an offset is generally the first place surplus cash should sit for a mortgage holder.
Offset or redraw?
They produce a similar interest outcome but differ in access and tax treatment:
- Offset — a separate transaction account. Your money stays yours, so withdrawing it does not affect the deductibility of the loan.
- Redraw — extra repayments already applied to the loan. Withdrawing them is treated as new borrowing, and the purpose of that new borrowing determines deductibility.
For an investment property this distinction matters considerably. Redrawing for private purposes can contaminate the deductible portion of an investment loan, a common and expensive error.
Frequently asked questions
Is an offset worth the package fee?
Do the arithmetic on your own balance. A $395 annual package fee is covered by roughly $6,100 held in offset at 6.5%. Below that the fee costs more than the offset saves.
Can I have more than one offset account?
Many lenders allow multiple offset accounts against a single loan, which suits borrowers who bucket savings. Check whether all of them offset at 100% — some lenders offset only the primary account.
Does an offset work on a fixed-rate loan?
Rarely at full effect. Most lenders either do not offer an offset on fixed loans or offer a partial offset. If offset capability matters to you, a split loan lets you keep an offset against the variable portion.
Related reading
- The Home Loan Repayment Formula, Worked Step by Step
- Weekly vs Fortnightly vs Monthly Repayments: The 13th Payment Effect
- Comparison Rate: What It Includes and What It Hides
Sources
- Offset accounts and redraw facilities — ASIC Moneysmart
- Rental properties: interest deductibility guidance — Australian Taxation Office
Rates checked as at 2 September 2026. Interest rates, lender policies and government schemes change frequently. Figures in this article are illustrative and were accurate at the date shown.
General advice warning: This article contains general information only. It does not take into account your objectives, financial situation or needs, and it is not personal credit or financial advice. Consider whether it is appropriate for you and seek advice from a licensed credit representative before acting.
Any interest rate shown is an example only and is not an offer of credit. Where a rate is quoted, the applicable comparison rate is available from the relevant lender and should be considered alongside it.
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