Offset accounts are great and most people should have at least one offset account, but there are situations where an offset account is not necessary.
Three situations I can think of are
- Someone with low cash savings, and unlikely to have cash savings
- Where the interest rates are higher on offset loans
- Where there are large annual fees
Loan product with an offset account is 3.8% and without an offset account is 3.4%
Interest on $100,000 at 3.8% = $3,800
interest on $100,000 at 3.4% = $3,400
The question is at what point does 3.8% rate equal $3,400 and working backwards this seems to be $89,474. so this means $10,526 in an offset or more could result in savings
interest on $100,000 at 3.8% with $10,526 in an offset = $3,400
Interest on $100,000 at 3.4% with no offset =$3,400
So this means unless the borrower has $10,526 in the offset, or more, they would be better off without an offset account.
Also offset loans often have a $395 annual fee. So that might mean about $20,000 is needed to be ahead.
Another situation where an offset may not be needed is where a person intends to smash the loan down and has no intention of investing. But in these cases I would probably suggest an offset account because circumstances change unpredictably.