Offset account vs extra repayments: which saves more?
Both cut interest by the same amount. The difference is access, fees and tax.
Key points
- $30,000 in an offset and a $30,000 extra repayment save almost the same interest.
- $50,000 kept in an offset on a $600,000 loan at 6.20% saves about $214,673.
- Offset savings are tax-free, so they usually beat a savings account.
- If the home may become a rental, an offset protects your interest deductions; redraw doesn't.
- Package fees of around $395 a year can cancel out a small offset balance.
An offset account and extra repayments both cut the interest on your home loan, and for an owner-occupier they save almost exactly the same amount. The real difference is access to your money, fees and, if the property might one day become an investment, tax. Here's how to choose.
Work out what your offset saves
How each one works
An offset account is a transaction or savings account linked to your loan. The bank charges interest on the loan balance minus the offset balance. With $600,000 owing and $30,000 in the offset, you pay interest on $570,000. Your money stays in your account and you can spend it any time.
An extra repayment reduces the loan balance itself. With $30,000 paid in, you also pay interest on $570,000. Most variable loans let you take extra repayments back out through redraw, but the bank can limit or remove redraw, and the money is legally part of the loan rather than your savings.
What an offset balance saves
On a $600,000 loan at 6.20% over 30 years (repayments $3,675 a month), keeping a steady balance in the offset and keeping your repayments the same:
| Offset balance | Interest saved | Loan paid off sooner | Interest saved in the first month |
|---|---|---|---|
| $10,000 | $51,375 | 1 year 4 months | $52 |
| $30,000 | $140,243 | 3 years 10 months | $155 |
| $50,000 | $214,673 | 6 years | $258 |
| $100,000 | $357,262 | 10 years 4 months | $517 |
The saving is the same as earning 6.20% on that money, tax-free. A savings account paying 5% earns taxable interest, so on the 30% tax rate plus Medicare it's worth only about 3.4% after tax. That's why offsets beat savings accounts for most borrowers.
Offset vs extra repayment: the same $30,000
| Where the $30,000 goes | Total interest | Time to repay |
|---|---|---|
| Nowhere (standard loan) | $722,933 | 30 years |
| Offset account, left untouched | $582,690 | 26 years 2 months |
| Extra repayment (lump sum) | $582,690 | 26 years 2 months |
The results are effectively the same. So for a home you'll always live in, choose on flexibility and cost, not on interest.
When an offset wins
- You might rent the home out later. If you pay extra into the loan and then redraw it, the ATO treats the redrawn money as a new borrowing. If you use it for private purposes, that part of the interest isn't deductible. Money in an offset never reduced the loan, so the full loan stays deductible once the property earns rent. On $30,000 at 6.20%, that's $1,860 a year of interest, worth about $595 in tax at a 32% marginal rate.
- You want a safety net. Your emergency fund can sit in the offset, reducing interest, while staying instantly available.
- Your salary is paid into it. Every dollar that sits there for a few days before bills go out reduces interest a little.
When extra repayments win
- The offset costs money. Many offset loans have a higher rate or a package fee of around $395 a year. If your offset balance is small, the fee can wipe out the saving: at 6.20%, a $6,400 balance saves about $397 a year, roughly the cost of one package fee.
- You're likely to spend money that's easy to reach. Paying it into the loan creates a little friction.
- You have a fixed rate. Most fixed loans don't offer a full offset, and many cap extra repayments at around $10,000 to $30,000 a year without a break fee. Check your loan contract.
Regular extra repayments add up
An extra $200 a week ($867 a month) on the same loan saves about $311,606 in interest and pays it off 11 years 5 months sooner. You get the same result by putting $200 a week into an offset and not spending it. Try your own numbers in the extra repayments calculator.
Watch for these traps
- Repayment reductions. Some banks lower your required repayment after you make extra repayments. If you then pay less, you lose much of the time saving.
- Partial offsets. A few loans offset only part of the balance (for example 40%). The saving is much smaller.
- Multiple accounts. Some loans let you link several offset accounts, handy for budgeting. Check whether each one has fees.
Frequently asked questions
Is an offset account better than extra repayments?
For an owner-occupier they save about the same interest. An offset gives easier access to your money and keeps interest fully deductible if the home later becomes a rental, but offset loans can carry higher rates or package fees.
How much does $50,000 in an offset save?
On a $600,000 loan at 6.20% over 30 years, keeping $50,000 in the offset saves about $214,673 in interest and cuts 6 years off the loan, if you keep making the same repayments.
Can I get money back out of extra repayments?
Usually yes on variable loans, through redraw. The lender can limit or remove redraw, and redrawn money used for private purposes isn't tax-deductible if the property becomes an investment.
Does money in an offset account earn interest?
No. Instead, it reduces the interest charged on your loan. That saving isn't taxable income, which is why it usually beats a savings account.
Sources
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Last reviewed October 2026. This guide is general information only. It isn't financial, tax, credit or legal advice and doesn't consider your circumstances. Rules change, so check the official sources below or speak to a licensed professional before you make a decision.