Question 1

How does a 100% mortgage offset account work in Australia?

Accepted Answer

A 100% offset account is an everyday transaction account linked to your home loan. Every dollar in the offset account reduces the loan principal that incurs interest each day. For example, if you have a $500,000 mortgage and $50,000 in your offset account, interest is charged on only $450,000.

Question 2

Is an offset account better than a high-interest savings account?

Accepted Answer

Yes, for most Australians. Interest earned in savings accounts is taxed at your marginal rate (up to 47%). Interest saved via an offset account is completely tax-free, generating an effective after-tax return equal to your mortgage rate.