Most people think of an offset account as a savings account with a good effective return. That framing is close enough — but it skips the mechanism. And when the mechanism is misunderstood, the account quietly underperforms.

Here's what's actually happening.

Your home loan charges interest daily, calculated against your outstanding balance. An offset account reduces that balance before the calculation runs. So if your loan is $500,000 and you're holding $30,000 in offset, the bank charges interest on $470,000 — every day that $30,000 is there.

It's not earning anything. It's preventing a charge.

At around 6%, every $10,000 held consistently in offset saves roughly $600 a year — and unlike savings account interest, that saving isn't taxable income. The after-tax comparison is more favourable than most people realise.

The practical implication: the account only works when money is consistently in it. Moving savings elsewhere, running a low balance for stretches of the month, or keeping funds in a separate account while carrying a home loan all reduce the effect — sometimes to the point where the offset fee outweighs what it saves.

The account works in proportion to what sits in it. That's the part worth understanding.