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  • What is an offset account?

    What is an offset account?

    Have you recently purchased a property? Are you looking for ways to save on your home loan? If you want to decrease the amount of interest you pay on your home loan each month and reduce the life of your loan, you should seriously consider using an offset account.

    What is it? 

    An offset account is attached to your home loan and works just like a regular bank account, as you can deposit your salary into it and withdraw money for everyday purchases using a debit card that you will receive from your financial provider.

    As the name suggests, an offset account is offset against your home loan balance, reducing the amount you pay interest on. Let’s give you a scenario. Say you have a $400,000 home loan balance and $50,000 in a 100% offset account, in this instance you would only pay interest on $350,000.

    Many home owners opt for an offset account over a savings account, as interest rates attached to home loans are generally higher with most sitting above 5%, compared to savings accounts generally sitting below 4%.

    What home loans offer an offset account? 

    Variable rate loans provide more flexible options, such as extra or lump sum repayments, a redraw facility and an offset account. You may have to pay a higher interest rate for these options, however over the life of the loan you could save yourself big bucks. But it’s important to do your maths, to ensure an offset account is worth it and right for your financial situation.

    By comparison, whilst fixed rate home loans offer the security of knowing how much your repayments will be, they generally don’t offer the option of an offset account. However, you could decide to split your loan by fixing a portion of the loan amount and leaving the remainder variable, as some split loans still provide the option of offsetting the variable amount.

    Who’s an offset account good for? 

    If you can’t afford to make extra or lump sum repayments, an offset account is a great way of reducing the interest you pay, as the amount in your account is offset against the home loan balance. Even if you need to dip into the money to pay for bills and everyday expenses, you will still be able to reduce the interest you pay when your salary is first deposited into the account fortnightly or monthly.

    So there you have it, an offset account could potentially save you thousands of dollars in interest and reduce the life of your loan.

    Read more about RAMS offset accounts.

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    About the author

    • Raymond

      Raymond A Ram is the RAMbassador for RAMS Financial Group. Raymond works with the RAMS team to bring simple, helpful and expert information on home loans and savings accounts to life with his down to earth and cheeky personality. He enjoys seeing everyday Australians turn their dreams of saving for a goal or getting into a home a reality. 

      Growing up in Goulburn, NSW, Raymond was brought up with good old-fashioned Aussie values of hard work and a fair go. It soon became apparent that Raymond wasn't content for the conventional path of grazing, producing the very best wool, and finding a nice sheep to settle down with. So it wasn't long before his passion for performing and his talent as a likeable larrikin shone through - landing him a few roles such as 'RAMlet'. He was even tipped to play RAM-bo at one point but chose to become star of the small screen instead as RAMbassador for RAMS. He now finds this role so much more rewarding.

      Contact your local RAMS Home Loan Centre about your home loan options.

      Raymond A Ram

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  • Disclaimer:

    This information is general in nature and has been prepared without taking your objectives, needs and overall financial situation into account. For this reason, you should consider the appropriateness of the information to your own circumstances and, if necessary, seek appropriate professional advice.