Is an offset account worth it?

Now that the State Government has announced measures to help first homebuyers enter the market it would be safe to assume that the demand will pick up from first time buyers and simultaneously a flock of buyers with limited understanding of what they're doing as far as finance goes.

Many lenders charge an annual fee for a package. The package generally includes a discount on the interest rate charged, a credit card and an offset account. The discount more than likely pays for the annual package fee on its' own but sometimes the bank has a no frills product. No dicounted rate, no offset account or credit card but the loan has a low rate, often called a base variable rate loan.

If you need a credit card you more than likely would need to pay an annual fee for one but considering the mortgage package fee can be almost $400 and a credit card fee is usually under $100 it could be worth paying for the card. But where possible they should probably be avoided depending on your own circumstances. 

The offset account though, that one is a great selling point. They are a fantastic feature of a loan and really there's nothing bad to be said about them unless you are paying unnecessarily for one. If you're unsure exactly what it is they do you can read all about them here. The thing is, if you are paying $395 a year for an offset account and you only ever have $1000 in the account the whole year you may only be saving yourself $40 in interest that year. If the offset account has $10,000 in it the whole year you save $400. 

There is a free option though. There are numerous loans that include a redraw facility and it achieves the same outcome as an offset account as you put any excess money you have into your redraw facility and withdraw it as the need arises. It does require a little more thought but at no cost it is definitely worth considering.