How much does money in an offset account actually save you?
Put $50,000 in an offset against a $600,000 loan at an example 6% rate and you save about $8.22 a day, $250 a month, $3,000 a year. Leave it there and the savings compound into six figures. We show the arithmetic, step by step, so you can run it on your own numbers.
The short version
- An offset saves you your loan rate on every dollar in it: $50,000 offset against a 6% p.a. loan (an example rate) saves $3,000 of interest a year, calculated daily.
- Left in place with unchanged repayments, the same $50,000 shortens a 30-year, $600,000 loan by about 4 years and 8 months and saves roughly $202,000 over the term.
- The savings are identical to paying the loan down, but the money stays yours to access, which matters for emergencies and for tax if the property ever becomes a rental.
People talk about offset accounts in vague terms. They "save you interest" and they "shave years off your loan", and both are true, but neither tells you how many dollars.
So let's do the sums with the working shown. You can then swap in your own balance and rate.
One note before we start. Every rate in this article is an example rate we picked to make the arithmetic clean (6.00% p.a.), not a quote of what lenders charge today. Your rate will differ, and the method below works for whatever it is.
How does an offset account actually work?
An offset account is an everyday transaction or savings account linked to your home loan. The lender calculates your loan interest on the loan balance minus the offset balance, so with a $600,000 loan and $50,000 in the offset you are charged interest on $550,000.
The money in the offset is still yours. You can spend it, move it or leave it, and while it sits there it cancels out an equal slice of the loan for interest purposes.
Interest on most Australian variable loans accrues daily and is charged monthly. That daily accrual is why an offset works even for money that only sits in the account between pay day and the credit card bill.
Every day a dollar sits there is a day of interest you don't pay on a dollar of the loan.
How much does $20,000 in an offset save?
$20,000 in an offset against a loan charging 6.00% p.a. (our example rate) saves you 20,000 × 0.06 = $1,200 of interest a year, or about $3.29 a day. The formula is offset balance × loan rate = yearly interest saved, then divide by 365 for the daily figure.
The saving scales linearly. $10,000 saves half that, $40,000 saves double, and a rate higher than our example gives you a proportionally bigger saving.
Why does that beat a savings account?
The saving is a return on your money at your loan rate, and you pay no tax on it. Interest you earn in an ordinary savings account is taxable income, while interest you avoid paying never counts as income at all.
So a dollar offsetting a 6% loan usually beats the same dollar earning interest in a savings account. The exception is a savings rate well above your loan rate, which is rare.
How much does $50,000 save on a $600,000 loan?
Using the same example rate of 6.00% p.a., $50,000 offset against a $600,000 loan saves $8.22 a day, roughly $250 a month, and $3,000 a year. Here is the full working:
- Without the offset, daily interest is 600,000 × 0.06 ÷ 365 = $98.63.
- With $50,000 in the offset, interest is charged on $550,000: 550,000 × 0.06 ÷ 365 = $90.41 a day.
- The difference is $8.22 a day, which is 50,000 × 0.06 ÷ 365. Over a 30-day month that's about $250; over a year, $3,000.
Now think about what happens to that $3,000. Your repayment doesn't change, so the interest you are no longer charged goes to the principal instead.
The loan balance then falls faster. Next month's interest is calculated on a smaller number, so even more of the repayment goes to the principal, and that compounding produces the numbers in the next section.
What does an offset do over the whole life of the loan?
An offset balance kept in place for the full term turns into a six-figure saving on a typical loan.
The table below is a worked example. It uses a $600,000 loan over 30 years at a constant 6.00% p.a. example rate, with monthly repayments of $3,597 held unchanged and the offset balance held constant the whole time.
These are model outputs rather than a promise. Real rates move, and real offset balances go up and down.
| Constant offset balance | Loan paid off in | Interest paid | Interest saved |
|---|---|---|---|
| $0 (baseline) | 30 years | $695,000 | – |
| $20,000 | 27 yrs 11 mths | $603,400 | $91,600 |
| $50,000 | 25 yrs 4 mths | $492,900 | $202,200 |
| $100,000 | 22 yrs 2 mths | $356,400 | $338,700 |
Worked example only: $600,000 loan, 30 years, constant 6.00% p.a. example rate, repayments unchanged, offset balance held constant. Figures rounded to the nearest $100.
What does that table assume?
Two caveats apply to that table. The first is that it assumes the money genuinely stays in the offset for decades, and life rarely works that neatly. Deposits, renovations and emergencies come along, and every withdrawal shrinks the effect from that day on.
The second caveat is fees. Offset loans sometimes carry a package fee or a slightly higher rate than a bare-bones loan, and a couple of hundred dollars of annual fees can eat a meaningful chunk of a $1,200 saving if your offset balance is small. Do that subtraction before you assume the offset wins.
Is an offset better than making extra repayments?
An offset and an extra repayment save exactly the same interest, dollar for dollar. Both reduce the balance the lender charges interest on.
The difference is access. Money paid into the loan can only come back through a redraw facility the lender controls, while money in an offset is your own savings, available the day you need it.
Tax is the other difference. If there's any chance the property later becomes a rental, redrawing previously repaid money for private purposes can permanently change what interest is deductible.
We've argued the full case in Offset account vs. paying down your loan. The offset usually wins on flexibility and preserves your tax options, while paying down wins on discipline and simplicity.
Is an offset worth it on an investment loan?
An offset reduces interest on an investment loan exactly as it does on a home loan. There is one wrinkle worth understanding: investment loan interest is generally tax deductible, so every dollar of interest the offset saves you is also a dollar of deduction you no longer claim.
That sounds like it might cancel out, and the arithmetic shows why it doesn't. Saved interest is worth 100 cents in the dollar to you, while a deduction only returns your marginal tax rate on the dollar.
Using our example, $3,000 of interest not paid leaves you $3,000 better off before tax. The same $3,000 claimed as a deduction would have returned a fraction of that, so paying less interest generally beats deducting more interest.
Many investors keep cash in an offset rather than paying an investment loan down for a second reason. It leaves the loan balance, and therefore its deductibility, intact while keeping the cash free for the next move.
Deductibility rules are genuinely nuanced, though. They depend on what the borrowed money was used for, and getting them wrong is expensive.
Treat this section as the questions to ask rather than the answers. Put the specifics to a registered tax agent before you restructure anything.
What should you do with these numbers?
Run them on your own loan rather than our example one. Kleev reads your lender and bank statements into a live model of your loan and offset.
You can then test what-if scenarios three ways: a regular monthly deposit into the offset, a target balance you're building toward, or a growth rate. Each one shows the interest saved and the new payoff date on your actual numbers, recalculated as your statements come in. Model your own loan and offset in Kleev →
Important: this is general info, not advice
- Kleev describes your own data and does not give financial advice.
- Every rate in this article is an example chosen to make the arithmetic clear, not a quote of current market rates, and the projections assume conditions (constant rate, constant balance) that real life won't match.
- The tax treatment of offsets, redraws and investment loan interest depends on your circumstances. Before acting, talk to a licensed financial adviser and, for tax questions, a registered tax agent.
Common questions
How much does $50,000 in an offset account save per year?
Against a loan charging 6% p.a. (an example rate), $50,000 in an offset saves 50,000 × 0.06 = $3,000 of interest a year, about $8.22 a day. The saving scales linearly: $20,000 saves about $1,200 a year at the same rate, and a higher loan rate means a proportionally bigger saving.
Does an offset account reduce interest daily?
Yes. Lenders with a 100% offset calculate interest daily on the loan balance minus the offset balance, then charge it monthly. Money sitting in the offset even for a few days between pay day and your bills reduces the interest for exactly those days.
Is an offset account better than making extra repayments?
Dollar for dollar they save identical interest, so the difference is everything else: offset money stays accessible as your own savings, while extra repayments can only come back via a lender-controlled redraw. For a property that might become a rental, redrawing for private purposes can also affect the tax deductibility of the loan interest, which is a question for a registered tax agent.
Is an offset account worth it on an investment loan?
The interest saving works the same way on an investment loan, but there is a tax wrinkle: interest on an investment loan is generally deductible, so every dollar of interest an offset saves is a dollar of deduction you no longer have. The saving is still usually worth more than the lost deduction, because you keep 100 cents of saved interest and a deduction only returns your marginal tax rate, but package fees and your own circumstances change the sums, so get personal advice.
How much faster does an offset pay off a 30-year loan?
In a worked example with a $600,000 loan at a constant 6% example rate and unchanged repayments, keeping $50,000 in the offset for the whole term clears the loan in about 25 years and 4 months instead of 30, saving roughly $202,000 of interest. The exact numbers depend on your rate, balance and how long the money actually stays in the offset.