What Is An Offset Account? - Westpac

The pros and cons of offset accounts

There are a few things to consider when deciding if an offset account is right for you:

Potential benefits

1. Reduce interest

The main benefit of an offset account is the ability to reduce the amount of interest you pay on your home loan.

2. Tax saving

There may be tax benefits. Any interest savings you make from having money in your offset account aren’t taxed – as it’s not counted as income. On the other hand, interest earnings from savings accounts are usually taxable.1

3. Access to your money

While your offset account is helping you reduce home loan interest charges, your money isn’t locked up. You can use it as an everyday account and have access to the funds anytime. So, if you need an extra bit of cash for a home renovation or a quick trip away, or even just to pay your grocery bills, you can use your offset account. Don’t forget though, as your balance reduces in your offset account, the interest saving will also be reduced.

4. Save over time

It’s also worth knowing that you don’t earn interest in a mortgage offset account as you would in a savings account. But what you’ll save on interest repayments over the life of your home loan, may be more than you’d earn in a savings account. For example, you can earn up to 0.25% p.a. on funds kept in a Westpac Life account, whereas you could save 4.58% p.a. in interest charges on the same funds if you kept them in an offset account attached to a Rocket Repay home loan (rates current as of 02/12/21).

Potential disadvantages

1. Fees

It’s possible that you could find yourself paying a higher establishment or monthly maintenance fee for a loan with an offset account. The offset account itself might also come with its own monthly account fee. It’s worth noting that these fees are waived at Westpac if you choose the Premier Advantage Package with your home loan (a $395 Annual Package fee applies)#. A home loan that has offset as a feature, may additionally come with a higher interest rate than one without offset.

2. Availability

Offset accounts are usually linked to variable rate home loans. At Westpac, we don’t offer offsets on fixed rate home loans, but most offer a redraw facility.

Different types of offset accounts

There are two main types of offset accounts – 100% offset and partial offset account.

100% offset account – all the money in your account is offset against the home loan

Partial offset account – only a percentage of your account balance is offset against the home loan

Here’s an example of how they differ: