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Should my emergency fund live in a savings account or in my offset account?

Bayley Clarke · Mortgage broker on the road · Last checked 16 October 2026 · 3 min read

The 60 second version, filmed from the driver's seat. The rest of this page is the detail underneath it.

Interest earned versus interest saved

Savings account rates have looked pretty good after the rate rises this year, and it's tempting to park your buffer there and watch the interest roll in. The problem is what happens to that interest once it lands. It's classified as income earned, and the ATO wants its share of it at your marginal tax rate.

On a 30% tax rate you keep roughly 70 cents of every dollar of interest the bank pays you. So the rate on the savings account isn't the rate you actually get. Take the tax off and the real return is a fair bit lower than the number in the ad.

An offset works the other way around. Every dollar sitting in it is knocked off the balance the bank charges you interest on. That's interest saved, not interest earned, so there's nothing to declare and nothing to tax. The full home loan rate works for you.

Why the offset wins nearly every time

Put the two side by side. The savings account earns its rate, then loses a chunk of it to tax. The offset saves you your home loan rate, untouched. Home loan rates generally sit above savings rates, and even when they're close, the tax takes the savings account backwards.

So the effective rate on the offset comes out well ahead of the after-tax rate on the savings account. I know which one I would pick. Same money, same emergency fund, just sitting in the account where it does more work.

And it's still an emergency fund. Money in an offset is your money, in an everyday account, available the day you need it. You're not locking it away or handing it to the bank. You're just making it pull its weight while it waits.

Setting it up so it stays an emergency fund

The one thing people worry about is that they'll spend it if it's sitting in an account they can see. Fair concern. A lot of loans let you have more than one offset account, so you can split it: one for bills and spending, one that's the emergency buffer and doesn't get touched.

Some offset accounts come with a package fee, often a few hundred dollars a year. On a small balance that can eat into the benefit, so it's worth running the numbers on your loan size and how much you'll actually keep in there. For most people with a real emergency fund, the offset still comes out on top.