An offset account can be a great way to reduce your home loan interest and get a better effective return on your savings. But historically very few lenders allowed more than one. Recently it has become easier to get multiple offset accounts linked to the same loan. This opens up some great savings and budgeting options.
As a brief recap, offset accounts allow you to set up a deposit transaction account where the balance is “offset” against your home loan balance. This has the effect of reducing your loan interest cost. If your home loan interest rate is 4%, you save 4% of the offset account balance in reduced interest. You are getting an effective 4% low risk, tax free, return on your money.
Alternatively, if you put your savings into a “high interest” savings account it will nearly always earn a lower interest rate than you pay on your loan. And then you have to pay tax on it. Net returns from “high interest” accounts are often less than half the effective return available from a home loan offset account.
Generally the best way to maximise your offset account balance is to have all your salary and any other income payments credited directly into it, and not use any other cash accounts.
However a down side with this is it removes the “segregated buckets” approach that many people like to use, with separate accounts for things like a holiday fund or kids education or “untouchable except in an emergency”. If you only have one offset account then you need to open other savings accounts with lower effective returns to achieve this. Or you can use “notional segregation” within a single offset account, but this can be hard to track and stick to.
The availability of multiple offset accounts solves this problem. Multiple offsets allows you to create separate, special purpose accounts, but still have them all offset against your home loan to get a better effective return. They provide a great option for more organised and disciplined management of your savings.
If you would more info about multiple offset accounts, please get in touch.
