Getting the most out of your 100% offset account

If you have a variable rate home loan with the option of linking an everyday banking account for 100% offset, here are a few ways to make sure that you’re using it to save as much interest as you can.

New to offset? Learn the basics from our Banking Products blog post: Your everyday banking account can reduce your home loan interest.

Get as much money in your offset as you can and keep it there for as long as possible

Every dollar in your linked everyday banking account saves you interest every day that it’s there, so it makes sense to keep your balance as high as you can. That’s because interest is calculated daily, so the longer you leave the money in your account the better off you’ll be.

Have your salary or wages paid into your offset

By having your employer send your pay directly into your linked everyday banking account, you’re making sure that the money you earn immediately reduces the interest you pay on your home loan. You can still access and spend your money like usual.

For example, $10,000 sitting in your everyday banking account for the life of your loan could save you $46,319 and help you to pay off your loan much sooner. (These savings are calculated on an interest rate of 7.22% per year and a 25 year loan term.)

Diagram showing $10,000 offsetting interest charges of $46,319.

Use your credit card for everyday purchases

Every dollar sitting in your linked everyday banking account matters, so taking advantage of interest-free days on your credit card can help you save money. Rather than spending money from your everyday account, use your credit card throughout the month for your purchases. This maximises the amount in your offset account and makes your money work harder.

You just need to ensure that when your credit card is due, use the money in your linked everyday banking account to pay the closing balance (in full) and avoid paying interest on your credit card.

If you have a rewards credit card, you’ll also be earning your rewards points.

Got some spare money? You’ll pay less interest with offset than you’ll earn with a savings account

You might be thinking that you’d rather have your money earning interest in a savings account rather than offset.

It’s nice to see your money earn interest, but you’re generally better off going with an offset account.

The interest you save with an offset will generally be worth more to you than the interest you could earn with a savings account. On top of that, any interest you earn through savings is usually taxable, but anything you save through offset isn’t as no interest is earned (you should check this with your own tax advisor).

Let’s look at your options if you have $20,000 that you want to keep at hand. Let’s assume your variable rate on your home loan is 7.5% pa. and your online savings account earns you 4.40% pa. in interest:

  • keep it in your online savings account and earn $73.33 a month in interest (which you’ll probably have to pay tax on), or
  • put it in a linked everyday banking account for 100% offset and save $125 in home loan interest over the same month.

Even before you pay tax on your savings interest, that’s a difference of over $50 each month. If you saved this much over a year, you’d be up by $620. At tax time you would also need to declare the interest you have earned. For example, if you were taxed at an average rate of 25% of your savings interest, the difference would go up to $840.

Term deposits vs discounted home loans

Even if you boosted your investment by using a high-paying term deposit, you’re still likely to be better off with offset. And that’s before you consider that this term deposit could lock your money away for as many as five years.

When offset might not be right for you….

Usually offset is the most convenient way to save yourself money on your home loan, but there are some exceptions and part of getting the most out of offset is knowing when it’s not your best option.

Another way to reduce the interest on your variable rate home loan is to make extra repayments. There is no difference in the money that you will save compared to using your offset, but there are some instances where making extra repayments to reduce your home loan balance can be a better option for you. For instance, when:

  • you want to increase the equity in your home
  • you want to reduce your loan repayments.

If your loan allows you to redraw your money when you are ahead on your repayments, making extra repayments can also help you keep track of your savings. Instead of having your savings sitting in your offset account where you have much easier access to it, you can transfer the savings into your home loan and have peace of mind that it is out of sight and out of mind. You will still be able to redraw these funds when you need it.

Not using offset yet?

Check that your loan offers offset – not all of them do. If your home loan is eligible, linking a new or an existing everyday banking account is easy to set up by contacting the bank. If you have an existing account you’ll keep your account number and any payments you already have set up won’t change.

You can generally only get offset on variable loans, or on the variable portion of your loan. So if you have a split home loan (meaning part of your loan is fixed and part of your loan is variable), you can usually link an offset account to the variable part.

Options if your loan doesn’t offer 100% offset

If you have a fixed rate home loan, your options may be more limited. At the end of your fixed rate period your loan will shift onto a variable interest rate, or you’ll have the option of splitting it into fixed and variable parts. When this happens you can consider getting an offset account.

Got any more questions about offset? Leave us a comment and we’ll get back to you.

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Comments
Julian February 15, 2012 at 4:43 pm

hello,
is it possible to have more than one offset account linked to the same home loan? i have a homeside deposit offset account linked to a homeplus package standard loan. with a view to managing my transactions more effectively i would like to have a second offset account or be able to split the existing account in two. please advise.
regards, julian

Reply

NAB February 16, 2012 at 2:13 pm

Hi Julian, both NAB and Homeside offer one offset account per home loan. We currently don’t offer additional offset accounts, however there may be additional options available. If you like, send through an email to social.media@nab.com.au and I’ll have our team follow up directly, thanks! ^AB

Reply

Louise April 4, 2012 at 2:45 pm

If I have several variable loans for investment properties, am I able to have an offset account against each loan

Reply

NAB April 10, 2012 at 1:11 pm

Hi Louise, yes, we offer one Offset Account per loan – please email social.media@nab.com.au and I’ll have our team follow up directly to help further, thanks. ^AB

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Junette April 26, 2012 at 6:00 pm

can you let me know why the interest rate on a nab home owners package loan and nab choice package loan are different. myself and my husband have been nab customers for over 21 years and have paid off both types of loans and not untill they were paid off did we notice the difference in the interest rate. The home owners package
is the one that was .04% more than the choice package.
Regards

Reply

NAB April 27, 2012 at 12:58 pm

Hi Junette, we’ll need to speak directly to help further with this – I’ve sent an email via social.media@nab.com.au and will have our team follow up, thanks. ^AB

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Michael April 27, 2012 at 2:17 pm

I have an account with 100% offset, and it seems like rather than interest going towards the available balance, it’s simply bringing forward the final repayment date.

This also meant that despite me being quite a way ahead with my offset arrangement (and having plenty of funds in my offset account), a random fee appearing on my loan put my loan into default – and the first thing I knew about it was a nasty letter from collections.

Reply

NAB April 30, 2012 at 12:29 pm

Hi Michael – I’ll chase this up with our team, let’s continue the chat via email (social.media@nab.com.au), thanks! ^AB

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Tu May 20, 2012 at 11:25 pm

Hi
I’ve just refinanced both of my homeloans to nab when I applied for a business loan.Been with nab for about 6 months.

I got my loans approved through a manager at a business centre.

Recently I went to my local branch and told I would like to open an interest offset account for my homeloans,but I’ve been informed by staff there that interest offset accounts can only be opened during the loan application process,they can’t be opened halfway through the loan or once the loan had been approved in other words.

And they told me to personally go back to whoever set up my loans so that person may be able to help.but that manager that set up my loans had already moved.

I’m pretty angry from the response that I’ve received and finding it abit ridiculous that people are not able to open an interest offset account halfway through the loan.

Hope someone is Able to give me more explanation.

Thanks

Reply

NAB May 21, 2012 at 5:46 pm

Sorry to hear of this Tu – I’ve just sent an email from social.media@nab.com.au and will have our team get onto this to confirm for you shortly. ^AB

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Sam May 30, 2012 at 4:53 pm

Hi NAB,

Is there a minimum withdrawal and deposit amount for the offset account.

For e.g CBA is $500

thx
sam

Reply

NAB June 4, 2012 at 2:49 pm

Hi Sam, if your offset account is a transactional account – there isn’t a minimum withdrawal/deposit amount. If I can help further, feel free to email social.media@nab.com.au and we’ll follow up directly, thanks! ^AB

Reply

adrian June 2, 2012 at 7:26 am

i have a 100%offset home loan, i think NAB have set it up to the wrong account, as it doesnt say anywhere on my statements, im not sure. Also, i havent been earning any interest in my everyday savings account so i assumed it was linked correctly, yet when i look at the interest im paying, i cant see how it has been offset at all. If by chance i am not getting my interest from savings, and not getting the reduced interest rate from having my savings offset, will NAB fix it up from the start off the poicy?

Reply

NAB June 4, 2012 at 2:39 pm

Hi Adrian, let’s chat about this via email (social.media@nab.com.au) and I’ll have our team chase this up for you directly, thanks! ^AB

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nick June 5, 2012 at 1:01 pm

If you have an interest only loan because you are building upwealth to purchase another property. Is it better to put the extra savings from only paying interest directly into the loan account or an offset account?

Would there be any tax issues putting it directly into the loan account and not having an offset account?

Reply

NAB June 5, 2012 at 4:04 pm

Hi Nick, an accredited Financial Advisor can help with this – I’ve sent an email via social.media@nab.com.au and can have our team follow up directly if you like, speak soon! ^AB

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APG June 22, 2012 at 5:30 am

We have moved some investments around. We now have enough money in a term deposit to pay off our homeloan. Is there any chance of linking the the term deposit to the homeloan in an offset?

Reply

NAB June 27, 2012 at 2:58 pm

Hi APG, a Term Deposit is not an eligible account to offset a loan – If you’d like to discuss this further, feel free to drop us a line via social.media@nab.com.au ^JL

Reply

Jim August 2, 2012 at 12:16 am

Is there a minimum deposit or withdrawal on 100% offset account?

Reply

NAB August 9, 2012 at 3:08 pm

Hi Jim, there is no minimum deposit or withdrawal requirement for an offset account. Let’s chat more via social.media@nab.com.au if you wish to set one up! ^JL

Reply

Jo August 23, 2012 at 2:50 pm

Hi NAB,

Is it possible to set up an offset account as a joint account where the loan is only in one of the account holders names?

Thanks!

Reply

NAB August 23, 2012 at 4:35 pm

Hi Jo, I’ve sent you an email via social.media@nab.com.au – let’s chat more over email ^AS

Reply

Franca October 6, 2012 at 2:38 pm

I would like to know once my fixed loan goes to variable after its term will I be able to redraw the extra I have been putting into it?

Reply

NAB October 30, 2012 at 1:07 pm

Hi Franca, once your home loan has become a variable rate loan, you can most definitely redraw the extra funds that have accumulated. Let’s chat via email (social.media@nab.com.au) if you have any more questions ^SM

Reply

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