Paying for an Offset You Don't Use? The Real Cost of an Empty Offset Account
An offset account is one of the best features a home loan can have, if you use it. But offset loans often come with a slightly higher rate or an annual package fee. If the account sits close to empty most of the time, you can end up paying more for the loan than you save in interest.
How an offset works, in one paragraph
An offset account is a transaction or savings account linked to your home loan. Every dollar in it is subtracted from your loan balance before interest is calculated. Owe $500,000 with $20,000 in the offset and you're only charged interest on $480,000. Interest is worked out daily, so what counts is the balance sitting there every day, not the amount that passes through it on payday.
The catch: offsets usually cost something
I ran a comparison of variable owner-occupier loans across the six largest lenders for a $500,000 loan at 80% LVR. One of them offers an offset on all of its home loans. The other five offer a loan with an offset and a "basic" loan without. Here's how those five compared:
Lender | Offset loan rate | Basic loan rate | Offset loan fees | Extra cost per year, empty offset |
|---|---|---|---|---|
Lender A | 7.24% | 6.69% | $12 a month | About $2,890 |
Lender B | 6.44% | 6.34% | $299 a year | About $800 |
Lender C | 6.34% | 6.34% | $248 a year | About $250 |
Lender D | 6.74% | 6.79% | $395 a year | About $150 |
Lender E | 6.46% | 6.79% | $10 a month | About $1,530 cheaper |
Variable owner-occupier principal and interest loans, $500,000 at 80% LVR. Pricing as at 26 October 2026. Lender E's offset loan is on discounted pricing; the others are headline rates. Rates change often, so treat these as a snapshot. Illustrative only.
For four of the five, the offset costs extra, through a higher interest rate, an annual package fee, or both. At Lender D, the offset loan's rate is a touch lower, but the $395 package fee more than cancels that out until you keep money in the account.
Lender E is the exception. Its discounted offset loan came in 0.33% below its own basic loan, so even with a $10 monthly fee, it's cheaper with nothing in the offset at all. That's the power of pricing, which we'll come back to.
What an empty offset costs you
If the offset sits at or near zero, you get none of the benefit and pay all of the cost. Over a 30-year loan, that adds up:
Among the four lenders where the offset costs extra, an unused one adds around $6,000 to $7,500 over the life of the loan at the low end, and around $70,000 at the high end on headline pricing. That's money spent on a feature that never did anything. At Lender E, the discounted offset loan works out about $35,700 cheaper over 30 years, before a dollar goes into the offset.
How much do you need to keep in it?
The break-even point is the average balance where the interest you save matches the extra rate and fees you pay. Using the same comparison:
Where the offset is priced through a package fee only, break-even can be as low as $2,000 to $4,000. Where it comes with a higher rate, you may need $12,000 or even $40,000 sitting in the account, on average, just to come out level. At Lender E there's no break-even to reach: the offset loan is ahead from day one.
That word average matters. Your pay might land in the offset fortnightly, but if the balance drops back near zero a few days later once bills, the mortgage and the credit card are paid, your average balance is far lower than it looks on payday.
Five years in: who's ahead?
Most people review or refinance their loan within a few years, so a five-year view is more realistic than 30. Here's the net position of each offset loan against the same lender's basic loan, depending on the average balance kept in the offset:
Average offset balance | Lender A | Lender B | Lender C | Lender D | Lender E |
|---|---|---|---|---|---|
$0 | $14,000 worse | $3,700 worse | $1,200 worse | $700 worse | $7,700 better |
$5,000 | $11,800 worse | $1,800 worse | $600 better | $1,300 better | $9,600 better |
$10,000 | $9,600 worse | About even | $2,500 better | $3,300 better | $11,500 better |
$25,000 | $3,100 worse | $5,800 better | $8,100 better | $9,300 better | $17,200 better |
$50,000 | $7,800 better | $15,200 better | $17,400 better | $19,300 better | $26,700 better |
Total interest and fees over five years, offset loan vs basic loan from the same lender. Lender E's offset loan is on discounted pricing. Assumes the average offset balance stays constant, money not in the offset earns nothing, and rates don't change. Rounded. Illustrative only.
Once you hold a decent balance, the offset clearly pays its way. Below the break-even point, the basic loan wins, sometimes by a lot.
Why so many offsets don't pay their way
From what I see with clients, people choose an offset with the best intentions, then life gets in the way. Pay comes in, bills go out, and the balance never builds. The research points the same way:
Close to half don't use them consistently. A Finder survey found 47% of Australians with an offset account don't keep money in it consistently, and 19% said they don't understand how offsets work.
Many never check it's working. Research by Money.com.au in 2025 found 57% of offset holders had never checked their offset was correctly linked to their loan.
Some aren't set up properly at all. In July 2026, ASIC reported that all eight banks it reviewed had weaknesses in how they set up and managed offset accounts. The most common failures were offsets opened but never linked to the loan, and offsets requested but never opened. Banks have paid more than $55 million in compensation for offset failures reported between September 2023 and August 2025.
Buffers are uneven. The RBA found that in early 2023, while many loans had large offset and redraw buffers, around 40% had less than three months of repayments set aside.
Offsets are popular, too. Around 55% of Australian mortgages have one, and total offset balances reached a record $349.1 billion in March 2026. The money is there in aggregate, but it's concentrated in some households, not spread evenly across everyone paying for an offset.
An offset you don't use isn't a neutral choice. It's a feature you're paying for every year.
What about redraw instead?
A basic loan usually still lets you make extra repayments and redraw them later. Money sitting in redraw saves interest exactly the same way money in an offset does, and on a cheaper loan. So if you'd be just as happy putting your spare cash straight onto the loan, the basic loan plus redraw can beat the offset at almost any balance.
Redraw isn't identical, though:
Access. Offset money works like an everyday account. Redraw can have minimum amounts, delays or fees, and lenders can limit access in some circumstances.
Repayments. On some loans, extra repayments reduce your required repayment at the next recalculation, which can quietly undo your progress.
Future investment property. If you might keep this home and rent it out one day, money parked in an offset is generally treated differently for tax than money repaid and redrawn. Speak to your accountant before choosing on this basis.
For more detail, see Offset or Redraw? The Checklist to Run Before You Decide.
When the offset label matters less than the price
Lender E shows why product labels only tell half the story. Its basic loan has no package fee, but its discounted offset loan came in 0.33% below it, which more than covers the offset's $10 monthly fee. At the one lender that includes an offset on all its loans, the decision isn't offset or no offset at all. It's about the package fee and, above all, the rate you're actually given.
In other words, a well-negotiated offset loan can cost less than an un-negotiated basic one. Comparing headline rates alone, or product names alone, can lead you to the wrong answer.
An offset is likely worth it if…
You'll realistically keep an average balance above your loan's break-even point
Your salary goes straight into it and you spend from it, or from a credit card you clear in full each month
You're holding a lump sum, such as savings for a renovation, an inheritance or a bonus
You want savings set aside without locking them into redraw
You may turn this home into an investment property later (check with your accountant)
It may not be worth it if…
Your account balance usually drops close to zero between pays
Your savings sit in a separate account you don't want to move
You'd rather make extra repayments straight onto the loan
The offset loan's rate or fees are noticeably higher than the basic option
If you already have an offset, check these
Is it linked? Your loan statement should show a lower interest charge than the full balance would attract. If you're unsure, ask your lender or broker to confirm.
What's your real average balance? Look at the last three months of statements, not just the balance on payday.
What are you paying for it? Compare your rate and fees with a basic loan from the same lender, and with what other lenders would offer you.
Is your money in the right place? Savings in a separate account earning taxable interest are often better off in the offset.
The bottom line
An offset is only as good as the balance you keep in it. If you'll consistently hold enough to clear the break-even point, it's one of the most flexible ways to cut interest. If you won't, a cheaper loan without one, or a better-priced loan with one, may leave you ahead.
Is your offset earning its keep?
I can check whether your offset is linked and working, what it's costing you, and whether a different loan structure would suit how you actually use your money.
Related reading: $50,000 Is Sitting in the Wrong Account: A Refinance + Offset Case Study · Weekly, Fortnightly or Monthly Repayments: Which Actually Saves You Money?
Sources: Product comparison of the six largest lenders' variable owner-occupier loans, $500,000 at 80% LVR, 26 October 2026 (calculations by Finance 365); ASIC review of mortgage offset accounts, July 2026, as reported by The New Daily and Australian Broker; Finder survey as cited by Property Update; Money.com.au research as reported by MPA; RBA Financial Stability Review, April 2023.
This article is general information only and does not take into account your objectives, financial situation or needs. Rates and fees are a snapshot as at the date shown and change regularly. Lender policies vary. Nothing here is tax advice; speak to your accountant about tax. Consider whether the information is appropriate for you and seek personalised advice before acting.
Ian Freeman, Finance 365. Credit Representative Number 439731 of Australian Credit Licence 384704.