An offset account is simply a normal everyday transactional bank account, but the balance in the account is used to reduce interest on your mortgage.

For example: A loan of $300,000, with a bank account ("offset account") balance of $10,000, means you pay interest on $290,000.

You can deposit and withdraw on this account the same way as other accounts, so it could be set up as an account for depositing your salary for instance. Interest is calculated daily, which means from the moment your money hits the account, you begin saving interest.

Although ATM, Eftpos, cheque and other facilities are available, offset loans encourage borrowers to use a credit card for all purchases and then settle the card in one transaction from the mortgage account per month. This allows the money to remain in the account to reduce the interest for the longest possible period of time.