Two of Australia’s biggest banks, NAB and Westpac, will allow customers to set up multiple offset accounts on their home loans. Offset accounts are everyday bank accounts linked to your home loan, which can help you save interest and potentially pay off your loan quicker.
NAB has followed Westpac in announcing today that homeowners can offset their mortgage across up to 10 separate accounts. The two major banks said they had seen an uptick in offset accounts, with NAB noting about 70 per cent of new homeowners were offsetting their loans with balances growing by 65 per cent to $48 billion since the pandemic.
Mozo personal finance expert Rachel Wastell told Yahoo Finance offset accounts were “one of the most underrated tools in a homeowner’s financial toolkit”.
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“They work 24/7 to shrink your interest bill, simply by letting your money sit in the right place,” Wastell said.
For example, if you had $10,000 in an offset account attached to a $500,000 home loan, you would be paying interest on a balance of $490,000. With multiple offset accounts, the combined balance across all linked accounts is used when calculating interest.
Westpac calculated that a customer with an offset balance of $10,000 who added a further $100 deposit every month, could save more than $110,000 in interest on a 30-year home loan of $500,000. This would also cut their loan term by nearly three years.
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NAB executive Andy Kerr said multiple offset accounts were ideal for Aussies who wanted to split their funds across several accounts or “buckets”, for example, for everyday living expenses, emergency funds and holidays.
“Many Australians bucket their money into different categories to manage their budgets,” Kerr said.
“With multiple offset accounts, they can continue doing this while also saving even more on their home loan interest. They no longer have to sacrifice one for the other.”
Kerr said offset accounts had been homeowners’ “secret weapon” during higher interest rates and cost of living, and the ability to open multiple offset accounts would take savings “to the next level”.
Westpac managing director of mortgages Damien MacRae said multiple offset accounts could offset more “visibility and control” over how homeowners allocate their money, manage their cash flow and track spending.
“Multi-offset accounts can also allow customers the flexibility to open a home loan with family or friends and still reduce their interest payments while keeping their broader finances separate,” MacRae said.
Wastell said the move meant people could put their paycheck, emergency fund or everyday spending money to work.
“A dollar in an offset can be as powerful as it reduces the interest you pay, with the added bonus of flexibility. You can still access your money when you need it,” she said.
The big downside is home loans that offset accounts sometimes come with higher interest rates and fees, compared to no-frills loans.
Commonwealth Bank has already been offering multiple free offset accounts for customers for some years. Customers can link up to 99 offset accounts to eligible CommBank home loans.
Multiple offset accounts are also already available to Westpac’s subsidiary St.George, Bank of Melbourne and BankSA customers.
ANZ is currently the odd one out, it only allows customers to link one offset account to eligible ANZ home loans.
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