Offset account vs savings account: where should spare cash actually sit?
For most Australian mortgage holders, the offset quietly beats the savings account - for two reasons the banks don't advertise loudly.
The two-part case for offset: first, the "return" is your mortgage rate - interest you don't pay on the loan - which is typically higher than what savings accounts pay. Second, and bigger than most people realise: savings interest is taxable income, while the interest you avoid via offset isn't income at all - a distinction the RBA's own research on the mortgage market spells out explicitly. A savings account has to beat your mortgage rate after tax to win, which is a high bar.
The honest arithmetic
Say your mortgage rate is 6% and a savings account offers 5%. $10,000 in offset avoids $600 of loan interest a year - tax-free by nature. The same $10,000 in savings earns $500, minus tax at your marginal rate - at a 32% marginal rate that's $340 kept. The offset advantage here isn't the 1% headline gap; it's closer to $260 a year on this one comparison, every year.
When the savings account still wins
Three honest cases. No offset-eligible loan: full offsets generally ride on variable-rate loans; if you're fixed, your options may be limited or partial. Fees eat small balances: if the offset feature costs a package fee and your balance is modest (MoneySmart suggests roughly under $10,000), a fee-free savings account can come out ahead. Bonus-rate games: some savings accounts pay promotional rates that briefly clear the bar - though they rarely stay above mortgage rates for long.
One more thing worth knowing: money in an offset is a deposit in a transaction account, so day-to-day access works exactly like normal banking - the comparison isn't liquidity, it's purely return.
The same tool doubles as a check: if you already have an offset account, it can tell you whether the interest charge on your last statement actually matches what the daily-balance math says it should be. That reconciliation check is not something most offset explainers offer - they will tell you how the math works, but not whether your own bank got it right.
General information only. This page explains how a loan feature works mathematically - it isn't financial advice, doesn't consider your circumstances, and loan products differ. For guidance on your situation, consider a licensed adviser; for impartial basics, Australia's government-run MoneySmart is a good starting point.