Offset account is essentially a daily transaction account related to a loan. The functions include offsetting the loan account and reducing the interest expense incurred from loan. It acts similarly to saving account of which the interest rate is consistent with the loan.
Features of the offset account:
- The interest on offset account is calculated on daily basis, which means if you save spare money into the offset account, then there will be overall interest benefit.
- Generally speaking, the offset account is only applied to variable interest rate rather than fixed interest rate. However, it is only accessible to several specific fixed-interest loans at a few banks.
- The offset account is included in the loan package, and it doesn’t apply to a single loan product.
- You could consider applying for multiple offset accounts to correspond with multiple loans for your convenience.
The benefit of offset account is that it could substantially save interest charges. For example, if the initial loan amount is $500,000, and you’ve put $100,000 into the offset account, the interest will only be charged on $400,000 base. Speaking of this, you could put your salary or spare savings directly into the offset account, then the same day interest could be waved off so as to maximise the interest repayment.
Additionally, you could withdraw from the offset account anytime you want, it’s pretty flexible for daily spending or substantial investment.
The interest generated from the balance of the investment loan could help you realise tax benefits. The loan balance will be less if you put extra money into the loan account without offset account, and the corresponding tax deduction will be less. The balance of loan amount won’t be decrease if you put it into offset account which could maximise tax benefits.