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Is it better to have money in an offset account or a savings account?

Updated: May 6

In most cases it is best to have money in an offset account rather than your savings account.

There are two main reasons why:

  1. Banks generally charge a higher rate of interest on loans, than they give out as interest to depositors

  2. You may need to pay tax on interest you earn, whereas you do not pay tax on any interest that you offset

Whilst the above is true in 99% of cases, there are two important exceptions:

  1. If you have fixed your mortgage at a very low rate (for instance when rates during COVID were ~2% p.a.) yet you can currently earn 5% p.a. in savings accounts.

  2. Once your home loan is fully offset (meaning your offset is more than or equal to the the loan amount) you are receiving no additional benefit on these amounts in surplus and therefore, savings accounts are best for the residual.

The table below provides a great summary of the relationship between interest rates and tax rates:

Another common question we get asked is, should we have funds in our offset against our investment property? Firstly, your priority should be to put the most amount of savings against your primary residence home loan as it is non-deductible, however if that has occurred and you have residual funds or you have fully paid off your home loan, then putting money into the investment property offset is still a better outcome than into a savings account. Whilst you may lose some deductibility on the loan, this is still a better after tax outcome than putting the funds in an offset account whereby you would need to pay tax at your marginal tax rate anyway.

Is there anything else we need to think of? Well, yes. Whilst the above is good general information, they are not the only alternatives available to you. For instance, if you have a lot enough investment timeframe, you may be better off investing the money in your own name or in your superannuation.

A Financial Planner can work out what the best strategy is for you based on:

  • The cost and timeframe of your goals

  • Your individual tax rates

  • Current and likely future interest rates

The purpose of this content is to provide general information only and is not personal financial advice. To book in an obligation free initial appointment visit

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