An offset account is a transaction account linked to a home loan whose balance is subtracted from the loan principal when interest is calculated. Interest accrues only on the difference, so money sitting in the account reduces the interest charged while remaining available to withdraw.
The mechanics are a daily calculation. With a $500,000 loan and $40,000 in a full offset account, interest for that day is charged on $460,000. The offset balance earns nothing itself; its effect is entirely on the interest side of the loan, and because repayments usually stay unchanged, more of each repayment goes to principal.
Offsets are a feature of some loans rather than a universal one. Loans carrying them may charge a package fee or a higher rate than a basic product, and some products offer partial rather than full offset. Redraw is the neighbouring concept: extra repayments held inside the loan itself, retrievable under the loan’s redraw terms rather than at call in a transaction account.
This page defines the feature factually; whether a particular loan’s pricing justifies it is a question for a licensed adviser, not this site. Tradergy’s home-loan tables show average advertised rates as neutral reference data.
Longer read: How offset accounts work on an Australian home loan. What an offset account does to loan interest, how it differs from redraw, what partial offset means, and the conditions that decide whether it is worth its fee.
For the live side of this definition, head to the home-loan rate tables.
Related terms
Loan-to-value ratio (LVR) · Comparison rate · All terms
Primary authority: Moneysmart: home loans. Definition reviewed against the authority’s published material; this page is reference information, not advice.
Common questions
How is an offset account different from redraw?
An offset is a separate transaction account whose balance reduces the interest calculation; the money stays at call. Redraw holds extra repayments inside the loan itself, and access is governed by the loan’s redraw terms. The interest effect is similar; the access mechanics differ.
Does money in an offset account earn interest?
No. The balance earns nothing directly; its effect is to reduce the loan principal on which interest is charged each day. The benefit arrives as lower interest on the mortgage rather than as interest income in the account.
Do offset accounts exist on fixed-rate loans?
Less commonly, and often only as partial offset. Full offsets are typically a variable-rate feature. Whether a fixed loan offers one, and on what terms, is set by the individual product, so the loan’s own documentation is the place to check.