Westpac Offset Account Calculator
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Reviewed by Calculator Editorial Team
An offset account is a savings account that earns interest on your deposits, but the interest is offset against your loan repayments. This means you earn interest on your savings while reducing the amount you pay on your loan. Our Westpac offset account calculator helps you determine how much you'll save by using an offset account.
How Offset Accounts Work
Offset accounts are a popular way to save money on home loans. When you open an offset account with your bank, the interest earned on your savings is applied directly to your home loan balance. This reduces the amount of interest you pay on your loan, potentially saving you thousands of dollars over time.
Offset accounts are only available to home loan borrowers. You must have a home loan with the same bank that offers the offset account.
How It Benefits You
Using an offset account can provide several benefits:
- Lower interest payments on your home loan
- Potential tax benefits if the interest is tax-deductible
- Easier loan repayments as you earn interest on your savings
- Potential to reduce your loan term and pay off your home loan faster
How It Works
The process is simple:
- Open a savings account with your bank that offers an offset facility
- Link the savings account to your home loan
- Make regular deposits into your savings account
- The interest earned on your savings is applied to your loan balance
- Your loan balance decreases, reducing the amount of interest you pay
How to Calculate Offset Account Returns
Calculating your potential savings from an offset account involves several factors. The key components are:
Formula
Total Savings = (Interest Earned on Savings) - (Interest Saved on Loan)
Interest Earned on Savings = (Savings Balance × Interest Rate × Time) / 100
Interest Saved on Loan = (Loan Balance × Interest Rate × Time) / 100
The interest rate for both your savings and loan will be the same if you're using an offset account. The time period is typically calculated in years.
Key Factors to Consider
- Your current loan balance
- Your savings balance
- The interest rate on both your loan and savings
- The time period you plan to keep the money in the offset account
- Any fees associated with the offset account
Example Calculation
Let's look at an example to illustrate how the calculator works.
Example Scenario
You have a home loan balance of $300,000 at an interest rate of 4%. You deposit $5,000 into an offset account that earns 3% interest. You plan to keep the money in the offset account for 5 years.
Calculating Interest Earned on Savings
Interest Earned = ($5,000 × 3% × 5) / 100 = $750
Calculating Interest Saved on Loan
Interest Saved = ($300,000 × 4% × 5) / 100 = $6,000
Total Savings
Total Savings = $750 (Interest Earned) - $6,000 (Interest Saved) = -$5,250
In this example, you would actually lose money by using an offset account. This is because the interest rate on your loan is higher than the interest rate on your savings.
Comparison Table
Here's a comparison of different offset account scenarios:
| Scenario | Loan Balance | Savings Balance | Interest Rate | Time (Years) | Total Savings |
|---|---|---|---|---|---|
| Scenario 1 | $300,000 | $5,000 | 4% | 5 | -$5,250 |
| Scenario 2 | $400,000 | $10,000 | 4.5% | 5 | -$8,250 |
| Scenario 3 | $250,000 | $7,500 | 3.8% | 5 | -$1,150 |
This table shows how different scenarios can result in different outcomes. It's important to carefully consider your specific situation before deciding to use an offset account.
Frequently Asked Questions
What is an offset account?
An offset account is a savings account where the interest earned is applied directly to your home loan balance, reducing the amount of interest you pay on your loan.
How do I set up an offset account?
You need to have a home loan with a bank that offers offset accounts. Then, you can open a savings account with the same bank and link it to your home loan.
Can I withdraw money from an offset account?
Yes, you can withdraw money from an offset account, but this will reduce the amount of interest that can be offset against your loan.
Are there any fees for using an offset account?
Some banks may charge fees for setting up or maintaining an offset account. It's important to check the terms and conditions with your bank.
Is an offset account right for me?
An offset account may be right for you if you have a home loan and want to reduce your interest payments. However, it's important to carefully consider your financial situation and compare the potential savings with other options.