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3 benefits of an offset account

8 March 2023

An offset account is a transaction account linked to your home loan. Not all loans from all lenders come with one, but there can be some significant benefits to utilising this type of account. Here are 3 benefits of an offset account to help you maximise the opportunities in your household budget.

1. Reduce your interest repayments

Offset accounts can reduce the interest you pay on your mortgage, by ‘offsetting’ your savings against your home loan balance. As an example, if you’ve got a $500,000 home loan and you keep $20,000 in your offset account, your interest will be calculated on your home loan balance minus your savings balance. In this case, $480,000.

Effectively, your interest is calculated as though you’ve already paid that $20,000 off your home loan, but the money is still available to access if you need it. Many homeowners park their emergency fund or rainy-day savings in their offset account.

2. Manage your budget

Your offset account can also be used to manage your budget, especially when you borrow with a lender that offers multiple offset accounts against one home loan.

Bendigo Bank’s Mobile Relationship Manager (Newcastle Region), Jane Partington, explains that “traditionally lenders offered the ability to have one offset account linked to a home loan.”

More modern lending, however, sees banks allowing customers to spread their offset savings over multiple accounts.

Bendigo Bank offers a 100% offset across up to 6 accounts for fixed and variable loans. “This ensures that every dollar offsets the balance of the loan,” explains Jane.

Splurge funds, emergency funds, school fee funds, holiday funds, grocery funds – all of your savings’ buckets can offset your home loan interest.

3. Make your money work harder for you

It’s smart to ensure you have access to cash in the bank if you need it. But savings in your bank account can lose value due to the disparity between interest rates and inflation. If your home loan interest rate is higher than the rate you’re earning on a savings account, your money would be working harder for you in your offset account.

Is an offset account the same as redraw?

No, redraw isn’t the same as an offset account. “The main difference is that an offset account is a separate account linked to the home loan for the purpose of calculating the interest payable on the home loan, whereas redraw is the ability to withdraw additional repayments made on the home loan,” Jane explains.

While both can help you reduce how much interest you pay, they have different benefits and restrictions. Be sure to explore which best suits your needs.

Things to consider when using an offset account

According to Jane, “some financial institutions do not offer a full 100% offset account, and many do not offer offset accounts on fixed rate mortgage products.” It’s important to be clear on the features and limitations of offset accounts across different lenders to ensure they suit your needs.

Find out more about Bendigo Bank’s 100% offset on both fixed and variable home loans with our Complete Home Loan.

You can also use our repayment calculator to see how an offset account can help you save.

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What is an Offset Account?
Any advice provided in this article is of a general nature only and does not take into account your personal needs, objectives and financial circumstances. You should consider whether it is appropriate for your situation. Please read the applicable product disclosure statement(s) on our website before acquiring any product.

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