Revolving Credit or Offset: Which Actually Saves More?

Both of these do the same arithmetic. Both reduce the balance your bank charges interest on, both calculate interest daily, and neither one is a clever product that beats the other on the numbers alone. Ask a broker which saves more and you will get a product comparison. The honest answer is that they save the same amount, and what differs is how much of that saving you will actually keep, which is a question about your cash flow and your habits rather than about the facility.

This page explains what each one actually is, states the tax point that makes both of them better than they look, and gives you a way to choose that does not depend on which bank you are sitting in front of.

What each one actually is

An offset arrangement links one or more everyday accounts to your home loan. The balances sitting in those accounts are subtracted from the loan balance before interest is worked out. Put $20,000 in a linked account and you are charged interest as though you owed $20,000 less. The money is still yours, still in your account, and still spendable tomorrow. The linked accounts pay you no interest, which is the whole trick and is dealt with below.

A revolving credit facility is a single account that is both your loan and your transaction account, with an approved limit. Your pay goes in and reduces the balance; your spending goes out and increases it again. Interest is charged on whatever the balance happens to be each day. Most people run it alongside a normal table loan rather than putting the whole mortgage into it.

The mechanism is the same in both cases: money that would otherwise be sitting idle spends its time reducing the balance you are charged interest on. The difference is structural. An offset keeps your savings visibly separate and your loan shrinking on a schedule. A revolving credit merges them into one number, which is more flexible and much easier to misuse.

The tax point, and it is the reason both beat a savings account

Interest you earn is income. Inland Revenue is blunt about it: you pay tax on interest you earn from bank accounts and investments you have in New Zealand, and your bank deducts resident withholding tax before it pays you.

Interest you do not pay is not income, so it is not taxed at all.

That asymmetry is the entire case for either facility. A dollar of mortgage interest avoided is worth a full dollar to you. A dollar of interest earned in a savings account is worth a dollar less your tax. So money parked against your mortgage is doing better than the same money in a savings account paying the same rate, and quite a lot better than one paying less, which is where most transaction balances sit. This is the same asymmetry that drives the answer on whether to pay off the mortgage or invest, and it is one of the most under-used facts in New Zealand personal finance.

So which one saves more?

For the same money sitting for the same number of days, neither. The saving is the balance reduction multiplied by your rate multiplied by the time it sits there, and that formula does not care which product delivered it.

What differs is everything around the formula:

• How much money you can keep in there. An offset only works if you genuinely hold a balance. If your accounts run near zero between paydays, there is very little to offset and the arrangement costs more than it returns.
• Whether the balance goes down over time. A table loan amortises whether you think about it or not. A revolving credit facility only reduces if you deliberately reduce the limit. Left alone, a great many of them sit at roughly the same balance for years while the owner believes they are paying down a mortgage.
• What it costs to have. Both usually carry either a facility or account fee, a slightly higher interest rate than a plain fixed loan, or both. There is no point saving interest on $5,000 of spare cash if the arrangement costs you more than that saving each year. Ask your lender for the fee and the rate difference in writing and do that subtraction before you sign anything.
• Whether the rest of the loan is fixed. Neither facility can offset or revolve a portion that is locked into a fixed term. In practice these sit on a floating slice of the loan, and the size of that slice caps the whole benefit.

The failure mode of each

Offset: the accounts stay empty. It is an arrangement designed for someone who holds a real balance, and it is sold to plenty of people who do not. The other one is complexity: some lenders let you link several accounts, and the more moving parts there are the more likely one gets closed or forgotten.

Revolving credit: the limit becomes the balance. This is the big one and it is not rare. The facility is designed so that spending is frictionless, and the discipline that is supposed to replace the friction is entirely yours. A revolving credit that never reduces is not a mortgage strategy, it is a very large overdraft with a house behind it.

There is a version of this that works extremely well, and it has one requirement: reduce the approved limit on a schedule, in writing, so that the facility must shrink whether or not you feel like shrinking it. Most people who do well out of revolving credit are doing that. Most people who do badly are not.

How to choose, in four questions

1. What is the average balance across your accounts over a month? Not the balance on payday. The average. If it is small, neither facility is worth its cost, and the useful move is a plain loan with extra repayments.
2. Do you want your savings to look like savings? If seeing a balance is what stops you spending it, an offset preserves that and a revolving credit destroys it. This is not a soft preference, it is the main determinant of the outcome.
3. Will you formally reduce the limit? If the answer is anything other than a clear yes with a date attached, a revolving credit facility will very likely still be sitting there in ten years.
4. What is the all-in cost against the all-in saving? Rate difference plus fees, against your average balance times your rate. Both numbers come from your lender, and if the difference is not comfortably positive, the answer is neither.

The thing worth doing before either

Both of these are ways of making idle cash work harder against your loan. Before optimising that, check the two things that outrank it: any debt costing more than your mortgage, and whether you are contributing enough KiwiSaver to collect your employer’s contribution and the full government contribution. Those are guaranteed returns that no facility on this page approaches. The order is set out on Should I pay off the mortgage or invest?

If you want this decided rather than explained

Everything above is general. What it cannot do is look at your actual loan structure, your fixed and floating split, your real average balance and the rest of your position, and tell you which one to take and how to set it up. That is what a Statement of Advice does, and at VIS.finance the price for it is published rather than quoted: $950 NZD, one-time and GST inclusive, covered by a no-find no-fee guarantee.

It matters here more than on most topics that the person answering is not paid by a lender. VIS.finance is a licensed Financial Advice Provider, FSP1010421, taking no commission from any bank, fund manager or product provider, so “neither, use a plain loan” is an answer it is free to give. Mortgage structure is inside the scope of advice it provides, set out on its public disclosure.

Where these figures come from

No interest rate, facility fee or lender product term is quoted on this page on purpose. They differ by lender, they change, and the only ones that apply to you are the ones your own lender puts in writing.

The tax treatment of interest you earn was read from Inland Revenue on 20 August 2026: Resident withholding tax (RWT).

This page is general information and not personalised financial advice. Which structure suits you depends on your loan, your cash flow and what you would actually do with an open limit.

Related

• Should I pay off the mortgage or invest?
• Am I in the right KiwiSaver fund?
• What independent and no-commission actually mean
• What VIS advises on

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