With interest rates moving lower in 2025, many homeowners are reviewing their loan features to see if they’re getting the best value. One feature that often comes up is the offset account—a transaction account linked to your home loan that can help you reduce the interest you pay.

But is it worth adding one? And when does it work best?

What is an offset account?

An offset account is a regular bank account that’s linked to your home loan. The balance in the offset is subtracted from your loan balance when interest is calculated.

Example

• Home loan: $500,000

• Offset account balance: $50,000

• Interest is charged on $450,000 instead of $500,000

This can reduce your interest bill and help you pay off your loan sooner.

Why rate cuts make offsets more appealing

The recent RBA rate cuts have lowered interest rates across many home loans. While that means your repayments may drop, it also means the savings from an offset account are slightly smaller in dollar terms compared to when rates were higher.

Even so, offsets can still be worthwhile, especially if you keep a healthy balance in them.

Offset vs paying down the loan

When deciding between putting spare money in an offset account or paying it directly into the loan, here’s what to weigh up:

• Offset account benefits:

  • You can withdraw the money at any time without needing to refinance or redraw.

  • Great for keeping funds available for emergencies or planned expenses.

• Paying down the loan benefits:

  • Reduces your loan balance permanently.

  • No temptation to spend the money sitting in the offset.

  • May save slightly more in interest if your loan’s redraw facility has no fees.

When an offset works best

Offset accounts often have a monthly or annual fee, so they tend to work best when the interest savings are greater than the cost of keeping the account.

Example: On many standard home loans, maintaining a balance of around $20,000–$30,000 in the offset could outweigh typical fees and result in noticeable interest savings. The exact amount will vary depending on your loan size, interest rate, and account costs.

To maximise the benefit, some borrowers choose to:

• Use the offset as their main transaction account so income is deposited directly, keeping the average balance higher

• Pay everyday expenses from it so the balance reduces gradually over the month rather than all at once

• Combine it with larger loans, where interest savings are more significant over time

Example of potential savings

On a $600,000 loan at 5.8% p.a. (variable rate), keeping $50,000 in an offset account could save around $2,900 in interest over a year. Lower rates reduce the dollar savings, but they can still be substantial over time.

The bottom line

An offset account can be a flexible and effective way to reduce your loan interest, but it’s not the right choice for everyone. If you can maintain a solid balance and value the ability to access your money easily, it can be worth the fees. If not, making extra repayments directly into your loan might deliver better results.

Next step

If you’re unsure whether an offset account would suit you after the latest rate changes, talk to us. We can compare loan options and help you decide on the most cost-effective setup for your situation.