An offset account is like a regular savings account except that it is linked to your loan account and any balance in the offset account reduces your loan principal. This has the main benefit of reducing the interest you pay each month.
For example, take a home loan at a rate of 4.0% p.a. with a balance of $500,000 and you had an offset account linked to the home loan where you maintained a balance of $50,000. The $50,000 in the offset account would effectively reduce the balance by $50,000 on which the interest is calculated - saving a cool $2,000 a year in interest.
Another benefit of an offset is account is that you can withdraw funds from it at any time, giving you easy access to your savings.
The main downside to an offset account is that many lenders will charge a monthly or yearly fee to have the offset facility. However, if your savings on interest is high enough then it will pay for itself over the life of the loan.
If you have a home loan then consider putting all of your salary and savings into a linked offset account. It can save you plenty on interest and allow you to pay off your home loan much faster.
Talk to us if you would like to learn more on how to save on interest by refinancing to a home loan with an offset facility.