Offset Savings Accounts

In recent years you might have heard talk of offset savings accounts.

These accounts can be extremely useful and save you a lot of money, however they can be quite tricky to understand and they do come in various different sorts or 'flavours'.

The key idea of an offset savings account, however, is as follows:

You link different sums of money, for instance a loan debt against savings, and the interest from one OFFSETS the other, hence the name OFFSET account.

As a practical example, imagine that you have a mortgage product and a savings account with the same financial institution.

A mortgage, of course, is a type of loan. And savings are savings and earn interest.

Now, the mortgage also has a rate of interest attached to it which of course costs you more money rather than saves it for you.

Now with an offset arrangement you could, rather than getting straight interest on your savings, use that interest to offset your mortgage amount - in other words, it goes against the mortgage.

The net result is that whilst you don't get interest growth on your savings, overall you are better off because that money offsets against your mortgage and so helps you to pay off your mortgage quicker, and almost certainly that is a more advantageous arrangement for you than treating the two separately, because the interest gained on savings is going to be less than the interest payments on the mortgage unless you have huge savings or a very small mortgage.

If you are interesting in offsetting and think it might be for you, the other good news is that most banks will be happy to explain it to you and get you set up with an offset account if it is something that they offer. They also tend to have quite clear information and examples of offsetting on their websites to demonstrate what it is and to bring the idea and concept to life.

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