How to pay less interest with an offset mortgage account and credit card

The key benefit of an offset account is that the money you put into it will reduce the amount of interest you pay on your mortgage. For many people, that means putting a lump sum into the account and never touching it.

This strategy is more hands-on but it gives you a way to maximise the savings by putting your salary into the offset account – and leaving it for a month. You can do that by using a credit card with interest-free days to pay for all your expenses.

Then, at the end of each month, you use the money in the offset account to pay your mortgage and credit card balance. Interested in seeing if this offset account hack will work for you? Let's take a look at what's involved.

A step-by-step guide to using a credit card and an offset account

1. Get a home loan with an offset account

If you're in the market for a new home loan, you can compare ones that come with an offset account. If you already have a home loan, ask your provider if it's possible to add an offset account, or consider refinancing to a loan that gives you this option.

2. Deposit a lump sum into the offset account

This lump sum becomes the baseline for saving money on your home loan through this account. In general, it's ideal to deposit a large lump sum so that you can start seeing savings on your home loan straight away, but the priority should be to put in an amount that you can afford to keep there long-term (i.e. savings).

3. Have your salary deposited into the offset account

This step saves you time on manually transferring your income after each payday, and it means that you can maximise the savings you get from having your income deposited into the offset account.

To do this, you will need to provide your employer and/or payroll team with the following details:

• Your offset account number
• The institution's BSB
• The name on the offset account

Usually, you can update these details by filling out a short form (either printed or online), but it's worth checking with your employer on the preferred process.

4. Work out how much you spend each month

Go through your everyday bank statement or use a free budget planner to estimate your monthly spending. This includes supermarket shopping, transport and utilities, as well as non-essentials such as streaming subscriptions, gym memberships and dining out.

With this strategy, the goal is to keep your salary in the offset account for as long as possible, so aim to be as detailed as possible when you work out your monthly spending. However, do not include your mortgage payments in the budget, as these will come directly from the offset account (more on that in step 6).

5. Use a credit card to pay for your monthly expenses

The key to making this strategy work is to get a credit card with interest-free days and then pay off the entire outstanding balance by the due date on each statement. This allows you to use the card for everyday spending without being charged interest on the balance.

6. Transfer your mortgage payment from the offset account

When your mortgage payment is due, pay it directly from the offset account. Note that your repayment amounts should stay the same when you use this strategy, but you will be charged less interest based on the daily balance of your offset account.

This means that using this strategy can save you money on interest charges each month, even when your repayments reduce the offset account balance until your next payday.

7. Pay your credit card balance before the due date

Use the salary that you deposit into the offset account to pay your credit card statement's balance. For this strategy to be effective, you need to pay the total amount that is listed on your statement before the due date. Otherwise, interest charges on your credit card could undo the benefits you get from having money in your offset account.

It's also a good idea to make this payment several days before the due date on your statement, just in case it takes a few days for the transfer to be processed.

If you're interested in how much value you could potentially get by using this strategy, you can also use the mortgage offset calculator below to get an idea of the potential savings based on different offset account balances.

What type of credit card can I use for this strategy?

You can use almost any type of credit card for this plan. But there are three major factors to consider before you choose one:

1. Does the card offer interest-free days on purchases?

This is essential, as interest charges could cancel out or even outweigh the potential savings you could make by using this strategy.

2. What credit limit can you get?

Credit card providers can only offer a credit limit that you could afford to pay off over a three-year period. This calculation is based on factors including your income, debt and other financial circumstances.

Considering this strategy requires a credit limit that fits with your monthly spending, in most cases, the limit you require will fit within these guidelines. But you may want to request a specific limit based on your budget to help you stick to it – and to reduce the risk of credit card debt.

As an added bonus, if the limit is lower than your regular income and expenses, it could help you gradually build up more savings in the offset account.

3. Will you be able to use the card to pay your other bills?

Some cards won't allow BPAY payments and some treat these kinds of transactions in the same way as cash advances. But you can sometimes avoid these issues by paying your bills through direct debit, PayPal or an online platform such as CommBank BPoint.

Check with your credit card provider and look at the payment options available for your regular monthly bills to see what will work. If you can't use your credit card without being charged interest, you will need to pay from your offset account and factor that into your monthly budget.

What to watch out for with this strategy

• Be vigilant with payments. Using a credit card to boost the savings you get from an offset account is only worth it if you consistently make all your home loan and credit card payments on time. That means factoring in payment due dates and processing times. So to be on the safe side, you may want to set up auto-payments, or set calendar reminders to make the repayments several days before the due dates.
• Factor in annual fees. Many credit cards charge an annual fee for the account, which could range from $30 up to $450 or more. While you may be able to offset this cost through perks such as rewards or airport lounge passes, you do still need to factor this cost into your overall budget. It may also be worth doing a yearly review of your costs vs savings to see if the card you have chosen is cost-effective when you use it for this strategy.
• Check offset mortgage terms and conditions. As every home loan has different terms and conditions, it's important to read through the fine print before getting started with this hands-on strategy. Key details to consider include whether you can add an offset account, what types of transactions you'll be able to make from the account, what fees apply and the repayment frequency.
• Make sure you get an actual offset account and not a redraw account. Both offset accounts and redraw facilities can help you pay less interest on your mortgage. But this strategy will only work with an actual offset account, as redraw facilities are not designed to be used for regular transactions. It's worth comparing these two home loan features in detail to decide which option you prefer.

What if you have a joint mortgage with someone?

To clearly explain this strategy, we have focused on how it works for an individual. If you're repaying a mortgage with someone else – and you both earn an income – you could consider the following options:

• Depositing both your wages into the offset account. In this case, you could both put all your income into the offset account and share a credit card account for your monthly spending. With this approach, you would need to factor both of your expenses into the credit limit. You could choose to get separate cards, but would still need to be clear on your spending budgets to make sure you get the most out of the offset account balance.
• Splitting up your wages. Instead of using a credit card for your everyday spending, with this option you could have one person put their entire salary into the offset account and use the other person's salary to pay for everything. You would still need to keep track of your spending, but it would cancel out the need for a credit card and could make it easier to track the savings you get from the offset account.

Ultimately, the way you use this strategy with a partner will depend on both of your circumstances and goals. Discussing your options in detail before taking any action will ensure that you and your partner are both on the same page in terms of the benefits and ongoing commitment involved in this repayment strategy.

What's next?

Your next step will depend on your current situation, so here are a few examples of what you could do to get started with this strategy.

• If you already have a credit card. Check with your credit card provider whether you're currently eligible for interest-free days and request a credit limit that fits with this strategy. If you don't like your current card, compare your other options instead.
• If you don't have a credit card. Or if you don't like your current card, compare credit cards and apply for one that fits with your goals, keeping in mind that having interest-free days and not carrying a balance are essential.
• If you have a mortgage without an offset account. Ask your provider if you can add an offset account. If that's not possible, you could look at refinancing to a home loan with an offset account option.
• If you don't yet have a mortgage. Compare options that offer you an offset account. It's also a good idea to spend some time getting your finances ready by paying off debts, increasing your savings and reducing spending on non-essentials. This guide for first home buyers offers some helpful tips on what to consider before you apply.

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Name	Purchase rate p.a.	Bonus points	Points per $ spent	Interest-free period	Balance transfer rate p.a.	Annual fee
Kogan Money Card – Exclusive Offer ExclusiveKogan Rewards Program	Purchase rate p.a. 20.99%	Bonus points N/A	Points per $ spent 1	Interest-free period Up to 55 days on purchases	Balance transfer rate p.a. 0% for 18 months with 1% balance transfer fee, then 21.74%	Annual fee $0	Go to siteMore Info Compare	Get 0% p.a. on balance transfers for 18 months with a 1% balance transfer fee. Plus an ongoing $0 annual fee. Ends 31 January 2024.
Citi Clear Card - Exclusive Offer Exclusive	Purchase rate p.a. 14.99%	Bonus points N/A	Points per $ spent N/A	Interest-free period Up to 55 days on purchases	Balance transfer rate p.a. 0% for 24 months with 1.5% balance transfer fee, then 22.24%	Annual fee $49 first year ($99 after)	Go to siteMore Info Compare	Offers 0% p.a. on balance transfers for 24 months (with 1.5% balance transfer fee) and a $49 first-year annual fee. Plus, 6-month complimentary Uber One membership valued at $9.99/month.
Westpac Low Rate Card	Purchase rate p.a. 13.74%	Bonus points N/A	Points per $ spent N/A	Interest-free period Up to 55 days on purchases	Balance transfer rate p.a. 0% for 28 months, then 21.49%	Annual fee $59	Go to siteMore Info Compare	Save with a 0% p.a. interest rate on balance transfers for 28 months. Plus, a low 13.74% p.a. purchase interest rate.
Westpac Low Rate Card - Cashback Offer	Purchase rate p.a. 13.74%	Bonus points N/A	Points per $ spent N/A	Interest-free period Up to 55 days on purchases	Balance transfer rate p.a.	Annual fee $59	Go to siteMore Info Compare	A no-frills card offering up to $350 cashback: $50 each month you make at least $1,000 of eligible purchases for the first 7 months.
Qantas Premier Platinum Qantas Frequent Flyer	Purchase rate p.a. 19.99%	Bonus points 80,000	Points per $ spent 1	Interest-free period Up to 55 days on purchases	Balance transfer rate p.a. 0% for 12 months, then 21.99%	Annual fee $349 first year ($399 after)	Go to siteMore Info Compare	Earn up to 80,000 bonus Qantas Points. Plus, save with a reduced first-year annual fee and 0% p.a. for 12 months on balance transfers.
St.George Vertigo Card	Purchase rate p.a. 13.99%	Bonus points N/A	Points per $ spent N/A	Interest-free period Up to 55 days on purchases	Balance transfer rate p.a. 0% for 32 months, then 21.49%	Annual fee $55	Go to siteMore Info Compare	Get a 0% p.a. interest rate on balance transfers for 32 months (with no balance transfer fee).
American Express Platinum Edge Credit Card Membership Rewards	Purchase rate p.a. 23.99%	Bonus points N/A	Points per $ spent 1	Interest-free period Up to 55 days on purchases	Balance transfer rate p.a.	Annual fee $0 first year ($195 after)	Go to siteMore Info Compare	Save with a $0 annual fee in the first year. Plus, $200 Travel Credit every year.
American Express Velocity Escape Card Velocity Frequent Flyer	Purchase rate p.a. 23.99%	Bonus points N/A	Points per $ spent 0.75	Interest-free period Up to 55 days on purchases	Balance transfer rate p.a.	Annual fee $0	Go to siteMore Info Compare	Save with an ongoing $0 annual fee and earn 0.75 Velocity Points per $1 on everyday purchases.
NAB Low Rate Credit Card	Purchase rate p.a. 12.49%	Bonus points N/A	Points per $ spent N/A	Interest-free period Up to 55 days on purchases	Balance transfer rate p.a. 0% for 28 months with 2% balance transfer fee, then 21.74%	Annual fee $0 first year ($59 after)	Go to siteMore Info Compare	Get a 0% p.a. interest rate on balance transfers for the first 28 months (with a 2% BT fee). Plus, save with a $0 first-year annual fee.
American Express Velocity Platinum Card Velocity Frequent Flyer	Purchase rate p.a. 23.99%	Bonus points 100,000	Points per $ spent 1.25	Interest-free period Up to 55 days on purchases	Balance transfer rate p.a.	Annual fee $375	Go to siteMore Info Compare	Partner Offer: Get 100,000 bonus Velocity Points when you spend $3,000 in the first 3 months. Plus a return domestic flight each year. Ends 06 February 2024.

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