Offset Accounts – money saver for home owners

An offset home loan makes spare cash work harder.

Research by ME Bank reveals that almost one in two (47%) Australian households are managing to tuck savings away each month. That’s great news. But in today’s low rate environment an offset account could be the ideal solution for home owners to make their spare cash work harder.

Offset accounts are a savings or transaction account linked to your home loan. Instead of being paid separate interest, the value of the linked account is deducted from your home loan when loan interest is calculated.

For instance, if you have $30,000 in the linked account and your home loan is worth $400,000, loan interest will be based on a balance of $370,000. This reduces the interest charged, making an offset account a very easy but highly effective way to get ahead with your home loan and save on long term interest costs.                                

To see just how much of a money saver an offset account can be, Member Privileges partner, ME Bank crunched the numbers, comparing the difference between investing $300 each month into a savings account earning 3.25% interest paid monthly, versus depositing $300 per month into an offset account linked to a $300,000 home loan payable over 25 years with an interest rate of 4.75%.

It turns out that under these circumstances, using an offset account would leave a hypothetical home owner close to $700 ahead after five years, assuming no withdrawals. It’s worth noting too that these figures don’t take into account the impact of tax.

What to watch out for

Along with a competitive loan rate, always check that the linked account is ‘100% offset’ so the full value of your savings is being used to reduce loan interest costs.

In addition, look for an offset account where your cash is available when you need it. Some offset accounts come with a free debit card that let home owners access their money at any time through ATM networks, a benefit that is both convenient and reassuring.

To learn more about offset accounts, call ME Bank on 13 15 63 or visit mebank.com.au.

Members Equity Bank Ltd ABN 56 070 887 679 AFSL and Australian Credit Licence 229500