What is an offset account, exactly?

How does the offset benefit work?

Home-loan interest in Australia is calculated daily and charged monthly. The daily calculation is the important part: whatever is sitting in your offset account at the end of each day reduces the balance the bank charges interest on for that day.

Say you owe $600,000 at 6.00% p.a. and hold $50,000 in a linked offset account. For every day the money sits there, the bank charges interest on $550,000, not $600,000. Over a 30-day month that is $2,712.33 instead of $2,958.90 — a benefit of roughly $246.58 for the month, or $3,000.00 over a year if the offset balance holds steady.

The full day-by-day arithmetic — including the rounding line, where a cent can legitimately go missing — is in the companion piece: how offset interest is actually calculated.

Is it the same as a savings account?

No, and the difference matters. A savings account pays you interest, which the ATO then taxes as income. An offset account pays you nothing — it hands you the equivalent value as interest you never had to pay, which is not taxable income. At a 6.00% loan rate, a full offset is worth a 6.00% after-tax return on your cash. A savings account would need to pay more than that before tax to match it, depending on your marginal rate.

The money also stays yours and stays liquid. Salary in, groceries out, same as any transaction account. Nothing is locked inside the loan.

Is it the same as redraw?

No. Extra repayments go into the loan; redraw is the bank letting you pull some back out, on the bank's terms — sometimes with fees, minimums or processing delays. An offset account is a separate account you control outright. Same arithmetic benefit, different level of access and a different line on your tax return if the property is ever rented out. (That comparison deserves its own working — it is on the calendar.)

Will it lower my monthly repayment?

Usually not. On a standard principal-and-interest loan the repayment is fixed; the offset changes what happens inside it. Less of the repayment is eaten by interest, so more cuts into principal, and the loan is paid off years earlier. Some banks offer to recalculate the repayment instead — worth knowing which yours does, because the two paths cost very different amounts of interest over the life of the loan.

Can it be set up wrong?

Yes — and this is the reason Offsetcheck exists. The offset benefit depends on the account being correctly linked to the loan inside the bank's systems. When ASIC reviewed offset accounts across Australian banks, it found linking and set-up failures, and banks paid more than $55 million in compensation. The failure mode is quiet: the account looks fine, the app shows a balance, and the benefit simply never arrives. Nothing on a statement announces it. (The reporting is on our news page.)

How do I know mine is working?

Check the interest line on your loan statement against the arithmetic: take each day's loan balance and offset balance, apply (loan − offset) × rate ÷ 365, sum the month, and compare. If the two figures differ by more than a rounding amount, something is off — the link, the rate, or the bank's calculation.

That is exactly what the check does, line by line, to the cent. Upload the statements; the working is shown either way.

Frequently asked questions

Does an offset account earn interest?

No. No interest is paid into it. The balance is subtracted from your loan when interest is calculated. The benefit is interest you don't pay, not interest you earn — which is also why it isn't taxable income.

Is an offset account the same as redraw?

No. Extra repayments go into the loan; redraw lets you pull some back on the bank's terms. An offset account is a separate transaction account you control — fully accessible, and it never becomes part of the loan.

Will an offset account lower my monthly repayment?

Usually not. The repayment stays the same; the split inside it changes. Less goes to interest, more goes to principal, and the loan finishes sooner.

Can an offset account be set up wrong?

Yes. ASIC's review found linking and set-up failures across multiple banks, with more than $55 million paid in compensation. If the account isn't correctly linked, the benefit may never be applied — and nothing on the statement makes that obvious.

How do I check my offset account is working?

Re-calculate the month's interest from your daily balances: (loan − offset) × rate ÷ 365, summed per day. Compare it to the interest line on your statement. Beyond a rounding amount, a difference means something is off.