How to tell if your offset account is fake, a disgrace or first-rate

I was interested to read your piece on the risks associated with some offset accounts. When I took out my mortgage I read the small print for a number of high street banks' mortgage products. One of them clearly stated that if they believed you were at risk of being unable to maintain payments they reserved the right to "call" on any money held with them and apply it to the mortgage. Which I interpreted, I believe correctly, as meaning that they could remove money from any offset I held with them while the mortgage was in force. Whether they would actually do it is another matter, of course, but personally I chose to go with a lender whose terms were a little more customer friendly.

Jackie, Sydney

In the words of Q&A's Tony Jones, I'll take that as a comment. And it's a good one Jackie.

The thing is, offsets can be fake, a fine-print disgrace ??? or they can be first rate.

Here are the questions everyone should ask of their offset accounts - today. Because the wrong one could see you lose all of your savings but the right one can slash a fortune off your home loan.

Question 1: Are you an authorised deposit-taking institution? If not, the offset account is fake: it's simply a tally of any extra you've repaid, which is sitting directly inside your home loan. Certainly, these lenders would have access to this money in the event you defaulted on repayments - or even potentially if another lender bought the company's loan book because they were in financial trouble ??? you might find your hard-earned savings are just netted off your new loan. Check lenders covered by the deposit guarantee, or Financial Claims Scheme, here.

Question 2: Does the account offset my savings dollar-for-dollar against my loan balance? And is the effective interest saving identical to the interest rate applied to my loan? Any "no" means your offset is a fine-print disgrace; you might even be better off putting your money in a bog-standard savings account. Fixed-rate loans are notorious for offering these partial offset accounts, but some lenders try and get away with it on variable rate products too.

Question 3: A straight up question - do you have call on the money in my offset account (or indeed any other account with you) if I missed a loan repayment? This will vary from lender to lender, and a first rate one will answer "no". And, no, just because they're on the high street doesn't mean your money is protected, Jackie.

If you can't get straight answers, all will be revealed in the sigh-inducing Product Disclosure Statement. A careful read could save you thousands.

Nicole Pedersen-McKinnon is a money educator and consumer advocate: themoneymentorway.com. You can write to her for help solving your money problem, or with a consumer question, at nicolehelps@fairfaxmedia.com.au.