Offset account, ETFs, physical gold, a term deposit, or extra super contributions — the honest answer is that none of them wins in general. Each one wins under particular assumptions. This article shows you which assumptions actually decide it, so you can run the comparison on your own numbers rather than someone else's.
Most articles answering this question quietly assume a set of numbers, then present the result as a rule. Change the assumed mortgage rate by a percentage point, or the marginal tax rate from 32.5% to 47%, and the ranking can reverse completely. The assumptions are doing the work, not the asset class.
Five inputs decide almost every comparison of this kind in Australia:
Cash sitting in an offset account reduces the balance your home loan interest is calculated on. You are not earning income — you are avoiding an expense — so the benefit is not taxed at all. That single fact is why an offset account competes with far riskier assets. A 6.5% mortgage rate produces a guaranteed, tax-free 6.5% return on the offset balance, with no market risk and same-day access.
Returns arrive in two forms with different tax treatment. Dividends are taxed each year at your marginal rate (franking credits can reduce this, and are not modelled in the calculator). Capital growth is not taxed until you sell, and if you have held the asset over twelve months, the current 50% CGT discount applies. That deferral matters more than most people expect — untaxed compounding for twenty years is a structural advantage no annually-taxed option has.
Gold pays no income at all. The entire return is price movement, taxed as a capital gain when sold, with the same 12-month discount rule. It is included in the comparison because many Australians hold it, and because it makes the growth-rate assumption unusually visible: gold's calculated result is almost entirely a function of what growth rate you assume, which is a useful reminder of how much any projection depends on that one number.
The most heavily taxed option in the list. Interest is taxed every year at your full marginal rate, so it never gets the benefit of deferred compounding. A term deposit at 5% with a 32.5% marginal tax rate is really compounding at about 3.4% after tax. Its value is certainty, not return.
Concessional contributions are taxed at 15% on the way in, so the balance starts below the amount you contributed and has to grow back. Earnings inside super are then taxed at a concessional 15% each year rather than at your marginal rate. The trade-off is access: you generally cannot touch it until preservation age. This is why super can show a negative figure in early years and still be strong over long horizons.
Comparing headline rates is the single most common mistake. The options are taxed in four genuinely different ways, and until you convert them to a common basis, the comparison is meaningless.
| Option | When tax applies | Taxed at |
|---|---|---|
| Offset account | Never — it is avoided expense, not income | 0% |
| Term deposit | Every year on interest | Full marginal rate |
| ETF — dividends | Every year | Full marginal rate |
| ETF / gold — capital growth | On sale only | Marginal rate, 50% discount if held 12+ months |
| Super | 15% on entry, then annually on earnings | 15% concessional |
Because offset savings are tax-free, you need to gross them up to compare fairly against a taxable return. The arithmetic is offset rate ÷ (1 − marginal tax rate):
| Marginal tax rate | 6.5% offset is equivalent to |
|---|---|
| 19% | 8.02% p.a. taxable |
| 32.5% | 9.63% p.a. taxable |
| 37% | 10.32% p.a. taxable |
| 47% | 12.26% p.a. taxable |
Marginal rates shown excluding Medicare levy, for illustration.
At a 47% marginal rate, a modest 6.5% mortgage becomes the equivalent of a taxable investment returning over 12% per year — guaranteed, with no volatility. That is the calculation people miss when they assume investing must beat paying down debt.
The figures below come from the calculator on this site, using $100,000, a 6.5% mortgage rate, an 8% ETF capital growth rate with 3.8% dividends, 8% gold growth, a 5% term deposit, a 7% super return, a 32.5% marginal tax rate and 3% inflation. They are calculated gains, not final balances.
| Option | 5 years | 10 years | 25 years |
|---|---|---|---|
| ETF (Stocks) | $52,806 | $125,883 | $578,166 |
| Physical gold | $39,306 | $97,060 | $489,810 |
| Offset account | $37,009 | $87,714 | $382,770 |
| Super contribution | −$2,289 | $30,451 | $210,428 |
| Term deposit | $18,053 | $39,365 | $129,292 |
Calculated gain order under these specific assumptions only. Not a recommendation.
Two things stand out. Super is negative at five years — that is the 15% entry tax, not a modelling error, and it recovers strongly over longer periods. And the term deposit finishes last at every horizon, because annual taxation at the full marginal rate prevents it from ever compounding efficiently.
Drop the ETF growth rate from 8% to a more conservative 5% and leave everything else identical:
| Option | 10 years | 25 years |
|---|---|---|
| Offset account | $87,714 | $382,770 |
| ETF at 5% growth | $81,492 | $288,213 |
Same inputs as above, ETF capital growth reduced to 5% p.a.
A single change to one assumption reverses the ranking. Nothing about the asset classes changed — only the number you believed about the future. This is the strongest argument for running the comparison yourself rather than trusting a general rule.
Risk is not in the headline figure. A calculated gain of $578,166 from an ETF and $382,770 from an offset account are not comparable certainties. One is a projection contingent on decades of assumed growth; the other is close to arithmetic. The calculator includes an optional risk-adjusted view that applies a haircut to riskier options as a tie-breaker — under that view, with the same default assumptions, the offset account leads at 25 years instead.
Access and flexibility are not in the figure either. Money in super is locked until preservation age. Money in a term deposit is locked until maturity. Money in an offset account is available today. If your circumstances might change, that difference may matter more than a few percentage points of projected return.
The calculator on this site compares all five options side by side using inputs you control — your mortgage rate, marginal tax rate, expected returns, holding period and CGT treatment, including a simplified model of the 2027 indexation changes. It also includes a breakeven solver that answers questions like "what return would the ETF need to beat my offset account?" rather than making you guess.
Open the Investment Comparison Calculator → Free · No sign-up · Works on iPad, phone and desktopNeither is better in general. The offset account produces a guaranteed, tax-free return equal to your mortgage rate; the ETF produces an uncertain return with tax deferred until sale. Which produces the higher calculated gain depends on your mortgage rate, marginal tax rate, assumed growth and holding period — and reverses readily when those change.
Put every option on the same basis: same starting amount, same holding period, and returns measured after the tax that actually applies to each. Gross up tax-free returns using rate ÷ (1 − marginal tax rate) so they are directly comparable with taxable ones.
Concessional contributions are taxed 15% on entry, so the balance begins below the amount contributed. It takes several years of concessionally-taxed compounding to climb back past the original figure. That is the trade-off for the 15% earnings rate and the restriction on access until preservation age.
The calculator includes a simplified model of the announced indexation approach, where the cost base is indexed to CPI and the remaining real gain is taxed at the higher of 30% or your marginal rate. It is a simplified illustration, not a complete implementation of transitional rules.