Offset Account vs ETF in Australia: How to Compare the Numbers

You have spare cash and a mortgage. Park it in the offset account for a guaranteed, tax-free saving, or buy ETFs and hope for more? This is one of the most argued-about questions in Australian personal finance, and most answers skip the step that actually settles it: putting both options on the same after-tax footing.

Australian context · Educational comparison method · Last reviewed July 2026

The core difference in one paragraph

An offset account produces a certain, tax-free return exactly equal to your mortgage rate. You are not earning income; you are avoiding an expense, and the ATO does not tax avoided expenses. An ETF produces an uncertain return in two parts: dividends taxed every year at your marginal rate, and capital growth that is not taxed at all until you sell — currently with a 50% CGT discount if you have held over twelve months.

Step one: convert the offset to a comparable return

Comparing a 6.5% mortgage rate against an 8% expected ETF return is not a fair comparison, because one figure is after tax and the other is before it. To compare properly, gross up the offset rate using offset rate ÷ (1 − marginal tax rate):

Marginal rates shown excluding the Medicare levy, for illustration.

This is the calculation that surprises people. On a 47% marginal rate, an ordinary 6.5% mortgage is the equivalent of a taxable investment returning more than 12% per year — guaranteed, with no volatility and no sequencing risk. Very few investors would describe a reliable 12% as a low bar.

Step two: run the actual comparison

The figures below come from the calculator on this site: $100,000, a 6.5% mortgage rate, 8% ETF capital growth plus 3.8% dividends, a 32.5% marginal tax rate, 3% inflation, and the current 50% CGT discount. These are calculated gains, not final balances.

Calculated gain under these specific assumptions only. Not a recommendation.

Under these assumptions the ETF leads at every horizon, and the gap widens over time. That widening is the deferred-tax effect: capital growth compounds untouched by tax until the moment of sale, while the offset's benefit, though tax-free, is capped at the mortgage rate.

What actually changes the answer

Your mortgage rate — the biggest lever by far

Holding the ETF at 8% growth and varying only the mortgage rate, over 25 years:

25-year holding period, all other assumptions held constant.

Somewhere just under 8%, the ranking flips. If you lived through mortgage rates of 9% or 10%, the offset account was close to unbeatable; at 5%, it struggles to compete with a growth asset. Your mortgage rate is not a detail in this comparison — it largely is the comparison.

Your tax rate — smaller effect than most people expect

Over 25 years, varying only the marginal tax rate:

The offset figure does not move because its benefit is untaxed at any marginal rate.

This one cuts against conventional wisdom. Yes, a higher tax rate helps the offset account relatively — the ETF falls from $642,665 to $512,033 while the offset stays flat. But it is not enough to reverse the ranking on its own, because only the dividend portion is taxed annually; the capital growth is still deferred and discounted. Tax rate alone is a weaker lever than the arguments on forums usually suggest.

Holding period, and the crossover

With an 8% mortgage rate and default assumptions elsewhere, the two options run almost neck and neck for two decades:

The crossover at year 23 is separated by roughly $100 — effectively a tie.

A gap of $108 after twenty-three years is not a meaningful difference; it is a rounding error inside assumptions nobody can forecast that far out. When a comparison is this close, the decision should rest on something other than the projected number — access to the money, sleep at night, or whether you would actually stay invested through a 40% drawdown.

The breakeven question

Rather than guessing at growth rates, invert the question: what mortgage rate would your offset account need for it to match every other option? Using the calculator's breakeven solver on default assumptions:

Rate required for the offset account to produce the highest calculated gain of the five options compared.

Framed this way the question becomes tractable. You do not need to predict the share market for twenty years — you only need a view on whether your mortgage rate will average above or below roughly 8%. That is still a forecast, but it is a far more grounded one.

What the numbers leave out

Risk is not in the headline figure. A projected $578,166 from an ETF and $382,770 from an offset account are not equivalent kinds of number. One is contingent on twenty-five years of assumed growth arriving on schedule; the other is close to arithmetic. The calculator offers an optional risk-adjusted view that applies a haircut to riskier options as a tie-breaker. Under that view, with identical assumptions, the offset account leads at 25 years — $382,770 against the ETF's risk-adjusted $346,900. The haircut is a simplified illustration, not a volatility model, but it makes the point that ranking by raw projected gain quietly assumes the risk away.

Behaviour is not in the figure. The ETF projection assumes you hold through every downturn without selling. Investors who capitulate in a crash do not receive the modelled return. The offset account has no equivalent failure mode.

Neither is what the calculator does not model: franking credits (which favour the ETF), brokerage and management fees (which reduce it), loan redraw restrictions, lenders mortgage insurance, or the possibility that you spend the offset balance instead of leaving it there.

When each tends to look stronger

Offset account

• Mortgage rate above roughly 8%, on the assumptions used here.
• Short or uncertain holding period — deferred CGT needs years to compound.
• High marginal tax rate, which increases the value of a tax-free benefit.
• You want certainty, same-day access, or the money has a purpose in the near future.
• You know you would struggle to hold through a market fall.

ETF

• Mortgage rate comfortably below your assumed long-run growth rate.
• Long holding period, letting untaxed capital growth compound.
• You can tolerate volatility without selling at the wrong time.
• You value diversification away from a single property asset.

Run it on your own numbers

Your mortgage rate is not 6.5% and your tax rate may not be 32.5%. Every figure above shifts with those inputs, and the ranking can reverse. The calculator lets you set all of them, compare five options at once, switch between nominal and risk-adjusted views, and solve for the breakeven directly.

Common questions

Is it better to put money in an offset account or an ETF?

Neither is universally better. On a 6.5% mortgage with 8% assumed ETF growth, the ETF shows a higher calculated gain at every horizon from 5 to 25 years. Raise the mortgage rate to 8% and the offset account overtakes at around year 23. Switch to the risk-adjusted view and the offset leads at 25 years. The answer follows the assumptions.

What return would an ETF need to beat my offset account?

As a rough guide, compare against the grossed-up offset figure: offset rate ÷ (1 − marginal tax rate). At 6.5% and a 32.5% marginal rate, that is about 9.63% before tax. The calculator's breakeven solver gives a more precise figure because it accounts for CGT deferral and the dividend split.

Should I split between both?

Many people do, and the calculator can be run on partial amounts to see the effect. Splitting reduces both the concentration risk of a single strategy and the regret of being entirely wrong in one direction. Whether it suits your circumstances is a question for a licensed adviser, not a calculator.

Does this account for franking credits?

No. The dividend component is modelled as taxed at your marginal rate with no franking benefit. Franking credits would improve the ETF's after-tax position for Australian shares, so the ETF figures shown here are, in that respect, conservative.