Are you shopping around for a home loan? You might get asked if you want a 100% offset account with the home loan. And how you answer this question is far more important than how you answer: "Do you want fries with that burger?"

So here is the quick, down and dirty way to understand offset accounts. An offset account requires you to set up a bank savings account at the same bank as your home loan. You would use this account to have your pay deposited. And it works the same way as a normal account would including having a debit card hooked up to it (or even a credit card if you're naughty).

However there is one very big difference on this account from a savings account.You do not receive any interest on your money. Instead, every night at midnight they calculate how much you have in the account and subtract this from your remaining home loan amount. For example if at midnight on the 14th of February you owed $500,000 on a home loan but had $1,000 in your everyday savings offset account, you will be only charged interest on your home loan at $499,000. Ok this sounds pretty good. You still owe $500,000 on the loan, but that night of the 14th of Feb they will only charge you as if you owed $499,000.

But be aware there are always downsides to doing this. For example we looked at a real major bank in Australia. And two loans which where identical in every feature but one allowed you offset and one didn't.

The first thing which struck us was the loan which allowed you to offset had a 7.67% a year interest rate, whilst the one that didn't had only a 7.17% a year interest rate. That's a massive difference of half a percentage. While this does not seem like much, if you took out a $400,000 loan over 25 years at the lower rate you would only pay $461,192 in interest. Yet the higher rate would cost you $500,101 in interest payments. That's a big difference of $38,909.

For banks to give you in one hand, they will always take back something in the other hand. So in this case by getting the offset ability you lose half a percent which adds up to a lot long term. Plus with the home loan that has the offset you also get charged an $8 monthly fee. Over the course of 25 years this will make the difference bewteen the two loans widen to $41,309. Again, still not too attractive.

But the big question is, how much on average do you expect to have in your savings offset account? For example if you expect on average to have around $10,000 in there constantly over the 25 years, by our calculations over the 25 years you will now only pay around $461,600 in interest. Ok this is more like it; you now are nearly even with the non offset account at only $192 more.

So you are taking a gamble on home loan accounts but for the offset to win in the end:

1. In this scenario you need to keep a regular balance of $10,000 in your account on average.

2. You hope the bank does not put up the fees on the monthly account charge.

However going this way there is not too much upside. If things go bad you can only keep on average $2,000 or $3,000 in the offset account over the period of the loan. Then you will once again fall behind the eight ball.

The question we get asked a lot is what if we come into money? All of a sudden we get $50,000 in our offset account. Our answer is this is great but if you want to reduce your home loan by this amount, why not just advance pay the money into the loan? You can do this regardless of which of the two loans you have. Both loans allow you to access extra money if you need it by withdrawing. If you need the extra money you can normally get it back within one week.

On a $400,000 loan, if everything goes to plan you might just be able to keep it on an even footing between the two options over the 25 years. But where it becomes extremely hard to juggle is if you take out a much bigger loan, say $600,000.

Now if you keep $10,000 on average in your bank account you will still be paying $16,091 over the course of the loan, even after the daily offset.

The problem with the offset account home loan is that the downside to it far outweighs the upside. And we believe unless you had a special, unusual case then it makes little sense. One case we heard of was a mother who wanted to give her son $200,000 after she passed away. To help her son she gave it to him early however they both agreed that he would not spend it until she did pass away. In this case it would be perfect to have an offset account as effectively it would be like getting charged interest on a home loan with $200,000 less than normal. But again, how often would this be the case?

If you just stick to the normal home loan without any bells and whistles, nine times out of ten you will benefit in the end.

Once you get into a debt relationship with your bank it can be hard to get out. Take credit cards for example. You are a great customer who pays on time. All of a sudden you receive a letter offering to increase your limit or move you from a normal card to a gold card with an increased limit. Do not take this as a compliment. Or what about the personal loan you have nearly paid off? The second you pay this sucker off the bank makes no money going forward. So you might find 12 months prior to getting it paid off that you receive a letter offering you to redraw and take more.

But the worse one of all is the redraw on your home loan. You have worked hard to bring down the home loan and pay as little interest as possible. So why are you even considering withdrawing for a boat or holiday? Remember the more you owe, the more the bank makes. Open mail from your bank over the waste paper bin so you can toss it right away when they want to extend your line of credit with them.

Do you always pay your credit card bill on time? Are you a great customer? Why not ask your bank if they will waive their annual fee? With fees sometimes around the $200 mark it could be a nice little saver if they will do it. Just make a note in your diary to call around 30 days before it's due.

If you must have a credit card, why not call your bank and ask if you can get your interest rate lowered? You would be 100% surprised at just how often banks will say yes to this request.