Understanding the Basics of Offset Accounts for FIFO

An offset account can cut the interest you pay on your home loan, and it can suit FIFO workers who keep a steady balance. Your savings sit against your loan balance, so you are charged interest on less.

If you work a roster with regular pay deposits and long stretches away from the shops, this can be a good fit. Here is how it works, what it costs, and how to tell if it suits you.

What Is an Offset Account and How Does It Work?

An offset account is a transaction account linked to your home loan. The balance in it is subtracted from your loan balance each day when the lender works out your interest.

Say your loan is $500,000 and you hold $50,000 in the linked offset. You are charged interest on $450,000. Your loan balance stays at $500,000, but the interest bill is lower. A 100% offset reduces interest dollar for dollar, though some lenders offer partial offsets, so check which type you are getting.

The money stays yours. You can take it out whenever you need it, which is the main difference from putting extra cash straight into the loan.

Why Offset Accounts Can Suit FIFO Pay Cycles

An offset account can put spare cash to work between pay days and R&R breaks. Pay lands in the account, bills come out over the fortnight, and the leftover balance reduces your interest every day.

This matters if you keep a steady balance while you are on site. Cash that would sit in a regular savings account can instead reduce your loan interest. Many lenders let you set up your pay to go straight into the offset, so there is nothing to remember.

If you want to see how lenders view roster income, our page on mortgages for FIFO workers explains how that works.

Offset Account Example: Illustrative Numbers

Here is an illustrative example using a rate of 6.75% p.a. Rates vary by lender and your situation, so treat it as a guide only.

Consider a FIFO worker with a $500,000 owner occupied home loan at 6.75% p.a. over 30 years, on principal and interest. The monthly repayment is about $3,243. The worker holds $60,000 in the offset account for the full year.

Interest is now worked out on $440,000 instead of $500,000. At 6.75% p.a., that is roughly $4,050 less interest over a year ($60,000 x 6.75%), or about $338 a month, if the $60,000 stays in the offset for the whole year. If the balance builds up gradually, the saving will be lower, and any higher rate or package fee on an offset-linked loan reduces the net saving.

The worker keeps paying the same $3,243 a month, so more of each repayment goes towards the loan balance rather than interest. The balance is still available if the car needs replacing or the worker wants to move money elsewhere. The saving only lasts while the money stays in the account.

What Does an Offset Account Cost?

Offset accounts often come with a higher interest rate or an annual package fee compared with a basic loan. The extra cost can cancel out the benefit if your balance is small.

If you only keep a few thousand dollars in the account, a basic loan with no offset may cost less overall. Compare the loan rate, the annual fee and the likely balance you will hold. A calculator can help you compare repayments, and a broker can run the numbers with you.

Some lenders also only offer offsets on variable rate loans. If you want a fixed interest rate home loan, check whether an offset is available at all. A split loan can give you a fixed portion for certainty and a variable portion with an offset attached, though the fixed portion may carry break costs if you exit early.

Offset Account or Redraw: Which Suits You?

An offset account keeps your savings separate from the loan, while redraw lets you take back extra repayments you have already made. Both can reduce interest, but they work differently.

Offset funds are usually easier to access day to day, as you can use a debit card on the account. Redraw may have limits or fees, and the lender can restrict access depending on its terms. Offset can also be handy if you keep a loan on an investment property, because your savings are not paid into the loan balance. For tax questions, talk to your accountant.

If you plan to build equity quickly, or want your money available at short notice, an offset account is worth asking about.

How Much Do You Need in Your Offset Account?

There is no set amount, but the bigger and more consistent the balance, the more interest you avoid. Even a few thousand dollars helps, but it needs to outweigh any extra fees.

For FIFO workers, a good starting point is the cash you do not need for weeks at a time. Keep a buffer for bills while you are away, and leave the rest in the offset. If you are still saving a deposit, the account can wait until you have a loan. When you are ready to apply for a home loan, our guide to getting loan pre-approval shows how to plan ahead.

Adding an Offset to an Existing Loan

You may be able to add an offset to your current loan, or refinance to a loan that includes one. This depends on your lender and your product.

If your current lender does not offer one, a refinance could be worth looking at, though you should weigh up any discharge fees, application costs and the new loan rate. Our home loan refinancing for FIFO workers page covers this, and a loan health check is a good way to see where you stand. If you are looking at a FIFO investment loan, the same questions apply, and you can read more on FIFO investment loans.

We compare home loan options from banks and lenders across Australia, so we can match an offset to your roster, your savings habits and your goals. Call one of our team or book an appointment at a time that works for you, and we will work around your swing.

Frequently Asked Questions