Offset accounts are savings accounts that are attached to a mortgage account, and they reduce mortgage interest. A growing number of them have debit cards.
An offset account works by reducing interest on a mortgage and in this way it cuts down the interest that has to be paid on the mortgage. It is not the same as paying directly into a mortgage account as the account is separate and the money can be withdrawn instantly. It is tied to a mortgage account, and it is only meant for overpayments. If there is an underpayment on the mortgage in any month then the amount will be taken off the offset account. However while the money is in the offset account, it can be withdrawn at will.
One of the ways in which the money can be withdrawn from the account is through spending on a debit card attached to the account. Not all offset accounts offer debit cards, but a growing amount are. This means that the funds that are in the account will be effectively withdrawn if the debit card is used for spending.
Debit cards were traditionally offered with transaction accounts. This was because they were seen as a replacement for cheques as they do roughly the same sort of thing. This has changed as debit cards are now offered with a number of accounts which traditionally did not have transaction facilities. These accounts include savings accounts, investment accounts, home loans, lines of credit and loan accounts. Offset accounts are a very natural addition to the list of bank accounts that offer debit cards.
The reason for this is that debit cards are in effect free to use to the bank and the debit card user. This is unlike a cheque which is often charged per cheque written. Debit card providers charge the shop or service providers that accept debit cards a “merchant fee” in return for processing the transaction. Shops are happy to accept this as customers spend more when they have access to their full bank account rather than simply to the cash that they have in their pocket. This means that the card runs to a profit on a day to day basis.
A debit card that is attached to an offset account can be used to pay for goods and services either at the point of sale, or over the internet, on the phone or by mail order.
