Offset account

An offset account is a transaction or savings account linked to your home or investment loan. The balance in the offset is netted off against the loan balance daily for interest calculation purposes - so $20,000 sitting in your offset against a $500,000 loan means you only pay interest on $480,000. You keep full access to the cash. For investment loans, the offset is the preferred place to park surplus cash because you preserve the deductibility of the loan interest (paying lump sums directly off the loan, then redrawing, can taint the deduction). Most lenders offer 100% offset on variable-rate loans; offset on fixed-rate loans is typically partial or unavailable.