Key takeaways
Nearly half of Australians with offset accounts aren’t using them properly, and around one in five don’t understand how they work.
This leads to missed opportunities to reduce mortgage interest and fast-track loan repayments.
Unlike savings accounts, which earn taxable interest, offset accounts reduce your mortgage principal for interest calculation purposes, delivering tax-free savings that can add up to thousands of dollars over time.
You don’t need hundreds of thousands in your offset account to see results. Even modest amounts like $10,000–$50,000 can significantly reduce interest over the life of a loan—especially when compounded.
While redraw facilities also reduce interest, offset accounts are more flexible, allow easier access to funds, and are better suited for tax planning—particularly if your property becomes an investment in future.
Most Australians are unknowingly handing thousands of dollars back to their bank every year—not by paying higher interest rates or missing loan repayments, but by failing to make smart use of one of the simplest tools available to them: their offset account.
A recent survey by Finder found that nearly half of Australians with offset accounts aren’t using them correctly, and about one in five admit they don’t even understand how they work.
Now let that sink in.
At a time when interest rates are still relatively high and household budgets are under pressure, many borrowers are literally leaving money on the table.
So in this article, let’s dive deep into what’s going wrong, why it matters, and how you can use offset accounts to fast-track your mortgage freedom and wealth-building goals.
What is an offset account, and why is it so powerful
An offset account is a transactional bank account that’s linked to your mortgage.
Unlike a savings account that earns interest (which is taxable), the money in your offset account reduces the amount of your mortgage on which interest is charged.
Let’s break it down with an example:
-
Suppose you have a $700,000 mortgage
-
And $100,000 sitting in your offset account
-
Your lender only charges interest on $600,000
It’s that simple—and that powerful because mortgage interest compounds daily, even a small balance in your offset account can result in substantial savings over the life of your loan.
Let’s say your interest rate is 6% and you have $50,000 in your offset account.
That’s potentially $3,000 in interest saved annually—and it’s tax-free.
Compare that to putting $50,000 in a savings account earning 4%.
After tax, you might earn around $1,700 a year.
Less than two-thirds of the benefit, and without the mortgage-reducing impact.
The cost of getting it wrong
According to Finder’s survey:
-
47% of Aussies with offset accounts aren’t keeping funds in them consistently
-
19% don’t even understand how they work
-
That’s potentially hundreds of thousands of households missing out on thousands of dollars in savings each year
It’s not just an oversight—it’s a wealth-destroying habit.
A homeowner who properly uses their offset account could shave 3 to 5 years off their loan term and save tens of thousands in interest, depending on their balance and loan size.
In contrast, treating your offset account like a normal transaction account—letting cash sit elsewhere or spending your income before it has a chance to offset the loan—is like running uphill with a backpack full of bricks.
Why this happens: common offset account pitfalls
There are several reasons Aussies aren’t using their offset accounts effectively:
1. Lack of financial education
Offset accounts are not well understood by many borrowers.
- Also read:Rental Markets Tighten Sharply Over May | Property Insiders
- Also read:Auction Report June 7th 2025 | Melbourne Top Auction Performer Over Holiday Week
- Also read:Latest Property Asking Prices State by State | New Listings Edge Up 4.2% in May 2025
- Also read:Housing values continue to rise as growth trends converge across the capital cities | Latest Cotality Data
- Also read:May Home Prices Rise as Interest Rates Fall | Latest Housing Market Stats Dr. Andrew Wilson
It’s not just first-home buyers; even some long-term homeowners haven’t been shown how to maximise this tool.
And let’s face it—the banks aren’t exactly motivated to teach people how to pay them less.
2. Behavioural habits and account fragmentation
People often split their money across various accounts for bills, savings, and discretionary spending.
Psychologically, this feels organised, but financially, it can dilute the interest-offsetting benefits.
3. Low balances or inconsistent income
Some borrowers believe they “don’t have enough money” to make an offset worthwhile.
But even modest amounts—$5,000, $10,000—can make a difference when compounded over time.
Every dollar counts.
4. Poor loan structuring
Far too often, people are advised to go with cheaper loans without offset features, or they rely on redraw facilities, not understanding the limitations and tax complications that can arise later, especially if they plan to convert their home into an investment property.
Offset vs redraw: why it matters
This is a common source of confusion, so let’s clarify:
| Feature | Offset Account | Redraw Facility |
|---|---|---|
| Function | Linked bank account | Repayments above the minimum |
| Access | Immediate, like a normal account | Often requires formal request or online transfer |
| Tax implications | Funds remain separate from the loan – better for future deductibility | May complicate tax deductibility if home becomes investment |
| Flexibility | High | Moderate |
| Best for | Investors, planners, flexibility seekers | Budget-conscious borrowers |
From a property investment perspective, offset accounts are usually a superior choice, particularly if there’s a chance the property will become an investment in the future.
With a redraw, you risk contaminating the tax deductibility of future interest.
The long-term payoff
When used right, an offset account acts like a silent wealth builder.
Imagine shaving 5 years off your home loan.
That’s not just about saving interest—it’s about unlocking financial capacity.
It gives you the opportunity to reinvest, leverage into another property, or simply reduce financial stress.
It’s about using your existing resources smarter, not harder.
Final thoughts
In a high-rate, high-cost-of-living environment, financial optimisation isn’t optional—it’s essential.
If you’ve got an offset account and it’s just sitting there as a glorified transaction account, you’re missing a golden opportunity.
And if you don’t have one, it might be time to review your loan structure with someone who understands the broader strategy behind wealth creation, not just home ownership.
Remember: Your money should work as hard as you do.
