Big asterix up front – not financial advice, check with your professional financial advisers etc… but… it could make serious sense to put your savings into an offset account (or if your loan is for your own home – directly into the loan) rather than a high interest savings account, and here are a few reasons why.
An offset account saves interest as though it is paid off the attached loan, so it has the same effect as being in the loan itself but it has the advantage of being immediately accessible, which is perfect if you’re the type who likes to have their direct debits all come out of your transaction account and not have to juggle money to ensure there’s a balance in the account to cover it.
The interest saving is essentially equivalent to the interest you’re paying on your loan, so likely 4% plus or thereabouts in current market, which is higher than that offered on even the most serious savings accounts these days.
The interest you save is not technically subject to tax as its not income – but rather savings, whereas interest that you earn in a high interest account or any other is income like any other income you earn and gets added to your tax return.
So save more interest than you earn and pay no tax on your savings – makes sense for most.
There’s also a handy separation with an offset account keeping your transactions out of your loan account, like it would be if you were an investor with a line of credit – for example. The offset account has a different statement to the loan proper which means there are no questions over redraws from an investment loan, yet you still save interest in the same way.
And did you know that with some lenders you can have multiple offset accounts, an account for each purpose – for example, holiday savings separate to saving for large bills or school fees, if that’s the way you find budgeting works best for you.
SO unless you have some significant reasons for doing otherwise look at the humble offset account.
Western Weekender article found here https://issuu.com/weekenderpenrith/docs/property11nov/34