Offset Account Setup
Depending on what country you live in, offset accounts come in a variety of flavors. Australians and Canadians have “all-in-one” mortgages, in the UK it’s called an offset mortgage, and in the US, it’s called a home equity line of credit (HELOC). Regardless of what you call it, an Offset Account is when your main spending account stays permanently in the negative!
As you can imagine, this gets tricky when your main spending account is always negative. Your YNAB budget is designed to work with the money you have on hand now. If you’re working with this type of account, remember that YNAB’s goal is to help you get back to positive and working with the cash you have on hand—because that’s when your financial immune system is strongest.
In This Article
If you are unsure whether or not this solution is for you or not, reach out to support by clicking on the question mark at the bottom right hand corner of your budget! We are always happy to advise on the best way to set up accounts for users 😀 If you do reach out, here’s the information we need:
- What account types do you have with your bank and what is the balance on each account? (Be sure to put a minus sign before the figure if the account balance is negative.)
- What is the credit limit on the debt account?
- Which account is your primary spending account?
- Into which account is your paycheck deposited?
Who is this setup for?
Who should use this account setup in their budget?
- You have an account that you spend out of that lives permanently in a negative balance AND you do not have access to a regular cash account
- You have an “All-in-One” or Manulife mortgage set up
- You have an Offset Mortgage type with your bank AND you do not have access to a regular cash account
Who should NOT use this account set up?
- You have access to a regular cash account (checking or savings) that is separate from your Line of Credit or Mortgage account
- You are not living permanently in a state of overdraft, or the overdraft amount that you owe is less than the amount of your next paycheck (check out this article on Getting Out of Overdraft)
Setting Up Your Offset Account
To set up this offset account type in YNAB, you’ll need three things in your budget:
- A Spending Account: an account with the account type Checking, for the account you spend from.
- A Credit Limit Account: an account with the account type Checking, with a positive balance equal to what you can borrow. This is a fake account with fake money in it.
- A Payoff category with a target, so you can set aside some of that fake money, and eventually pay off the debt completely.
You’ll add an account that represents your current debt balance. This is the account you will spend from and record all transactions in.
Add a new account and select account type “Checking.” The balance of this account should be set as the current balance of your offset account and will be negative.
“What if I’ve already got an account like this set up? Can I just use that one?”
You sure can! As long as the balance is correctly showing as negative, and matches the balance at your bank, you can continue to use this existing account.
This is not a real “account” with your bank, but simply a way of expressing your borrowing limit in a way that offsets your debt balance. Add a new account, choose “Unlinked,” and select account type “Checking.” The balance of this account should be set as the limit you are able to borrow, as a positive number. For example, if your borrowing limit is $50,000, enter that as a positive amount in the account set-up process.
Now check out the Ready to Assign amount: it has all the money you’re able to borrow, in green. Your next step is to tuck some of it away in a category and make a plan to get out of that debt. Here’s how:
- Create a category in the Debt Payments category group called “Offset Payoff” (or whatever you’d like to name it).
- Select that category and click “Set a Target” in the Inspector.
- Choose Target Savings Balance, 'By Date.'
- For the amount, enter the credit limit of the offset account (the same number as the balance of the Offset Credit Limit account, from step 2).
- For the date, enter the month and year that your loan matures (when your bank will require you to have paid off your loan), or the date you’d like to be out of overdraft.
The amount displayed in that target is the minimum you should set aside each month to pay down your offset account to zero. Assign at least that amount now! If you don't, you'll be living on debt, not the assets you are depositing in the account.
Using Your Offset Account
Now you can use your budget as normal. Enter and/or import spending and income transactions into the Spending Account. When you get a paycheck, add it to your Spending Account as a positive Inflow: Ready to Assign transaction, and the amount will show up in Ready to Assign because you’ve offset the negative balance of your account with your spending limit account!
The Payoff category will continue to accumulate cash every month - even though it might look like you’re holding a large pool of “available” money here, this category is actually the amount you’ve paid into the debt on your account. If you move money out of the Payoff category, you’ll be effectively borrowing more from the credit limit.
Banks love these types of accounts because they don’t expect people to make any headway on paying off the debt over time - but because you’re a YNABer, you’ve got a superpower here in your budget to help you beat the bank — unless you need to, don't touch the money in this category!
Once the Available balance of the "Payoff" category equals the balance of the credit limit account, you’re out of debt and can dismantle this system. 🎉
Would you like to see a dedicated account type for offset accounts? Fill out the Feature Request Form—our designers would love to hear your ideas!