Offset vs Savings Calculator NZ
This calculator helps you decide where spare cash does the most good when you have a mortgage and could either offset it or park it in a savings account. In New Zealand, money sitting in a mortgage offset account reduces the interest charged on your home loan without counting as taxable income, while interest earned in an ordinary savings account is taxed through resident withholding tax before it reaches you. Enter your spare cash amount, your mortgage rate, your savings account rate and your RWT rate of 17.5%, 30%, 33% or 39%, and the calculator works out the annual offset benefit, the after tax savings interest, and the dollar advantage of offsetting over saving, along with a plain verdict on which option wins with your numbers. Because offsetting saves interest at your full mortgage rate and pays no tax, it usually beats savings interest once tax is taken into account, even when the savings rate looks similar or slightly higher. Use it to check your own figures before locking spare cash into a term deposit or savings account, especially if your mortgage already has an offset facility attached. Keep in mind offset accounts can carry their own conditions, fees or a higher rate on the linked loan, so weigh up the whole package rather than the rate alone. This is an indicative estimate only, not financial advice.
Offsetting reduces mortgage interest at your full rate, with no tax. Savings interest is taxed via resident withholding tax, so its after-tax return is lower. An offset facility may have conditions or a higher loan rate, so check the full package. Estimate only, not financial advice.
How it works
The offset benefit is your spare cash times your mortgage rate, because every dollar offset saves that much interest, and saved interest is not taxed. The savings benefit is your spare cash times the savings rate, reduced by tax at your rate, because interest is taxable income. Comparing the two shows the offset usually wins, since it saves at the higher mortgage rate and is tax-free.
Worked example
$40,000 against a 6.5% mortgage saves $2,600 of interest, tax-free. The same $40,000 in savings at 4.5% earns $1,800, but after 33% tax that is about $1,206. The offset is roughly $1,394 a year better, which is why spare cash often does best against the mortgage.
Related calculators
- Mortgage Offset Calculator: offset in detail.
- Revolving Credit Calculator: revolving credit savings.
- RWT Calculator: tax on interest.
- Mortgage vs Invest Calculator: pay down or invest.