There’s a lot to love about offset accounts, and our four top tips can help you supersize the benefits.
1. Know how it works
The first step to making the most of your offset account is understanding exactly how it works.
Offset accounts are simply cash accounts linked to your home loan. Instead of being paid interest on the linked account, the balance of the offset is deducted from your home loan when monthly interest is calculated. So if you have a loan of $400,000, and $50,000 sitting in an offset account, the interest cost will be based on a loan of $350,000. Your loan repayments remain the same meaning more of each payment reduces the balance of the loan.
The bottom line is that the higher the balance of the offset account, the bigger the savings on home loan interest.
2. Use your offset account as a one-stop-shop for savings
If you’re growing cash savings it can pay to bypass savings account and focus on building the balance of your offset account. The same applies if you receive any lump sum payments like a tax refund, an inheritance or a gift of cash. You’re likely to get more bang for your buck by investing the money in your offset account rather than storing the funds in, say, a term deposit.
That’s because your home loan comes with a higher rate than savings accounts. So you can save more on loan interest than you’ll earn with separate savings. In addition, while interest saved on your home loan is tax free, any interest earned on savings accounts is fully taxable.
3. Have your salary paid into your offset account
Using your offset account like an everyday account can turbo-charge your savings. Interest is typically calculate on a daily basis so even though the balance of the offset account will rise and fall from day to day, it’s worth grabbing any opportunity to increase the balance and thereby lower your home loan interest costs.
4. Be sure your offset account is up to scratch
Not all offset accounts are the same. Key features to look for include:
- 100% offset – this is where the entire balance of the linked account is offset against the loan. Some only offer partial offset.
- At-call access to your funds – if you can access your money when it’s needed, there can be more of an incentive to grow the balance of your offset account.
- A competitive rate – an offset account is a great way to save on interest costs but it still makes sense to have a competitively priced home loan.