Offset Account vs Redraw: What’s the Difference?
An offset account and a redraw facility both let you use spare cash to reduce the interest on your home loan. They work in similar ways, but there are real differences in how you get to your money, what each one costs, and how they can affect tax if you own, or later plan to own, an investment property.
With the Reserve Bank lifting the cash rate to 4.60% on 29 September 2026, many borrowers are looking for ways to bring their interest costs down. Making the most of your loan features is one place to start.
Below, we explain how each feature works, how they compare, and some of the things you may want to weigh up before choosing one.
What Is an Offset Account and How Does It Work?
An offset account is a transaction or savings account linked to your home loan. Instead of earning interest, the balance is subtracted from your loan balance when your lender works out how much interest to charge.
For example, if you owe $750,000 and have $50,000 in your offset account, you're only charged interest on $700,000.
A few things to know about how offset accounts work:
Interest is calculated daily. Every dollar reduces your interest for each day it sits in the account.
Your money stays easy to reach. You can use the account like an everyday account, with a debit card, transfers and your pay going straight in.
Your minimum repayment generally stays the same. Because you're charged less interest, more of each repayment goes toward the loan itself, which can shorten the life of your loan.
They're generally offered on variable rate loans. If you're considering a fixed rate, check whether the lender offers any offset on the fixed portion.
Some lenders allow more than one offset account. This can help if you like to keep bills, savings and spending separate.
Offset accounts usually come at a cost. This might be an annual package fee, a monthly account fee, a slightly higher interest rate, or a mix of these. As an example, some major lenders charge an annual package fee of around $395.
What Is a Redraw Facility and How Does It Work?
A redraw facility lets you access the extra repayments you've made on your home loan. Anything you pay above your minimum repayment goes straight onto the loan, lowering the balance you're charged interest on. If you need that money later, you can redraw it.
How redraw facilities generally work:
The interest saving is the same as an offset. Each extra dollar reduces the balance you're charged interest on, dollar for dollar.
Only extra repayments can be redrawn. You can't take back the minimum repayments you were required to make.
Access takes an extra step. Depending on the lender, you may need to request a redraw through internet banking or by contacting the lender, and the money may not arrive straight away.
Lenders set their own rules. Some lenders limit how much you can redraw, set a minimum redraw amount or charge a fee. Others may delay access to the funds.
It's often included at no extra cost. Many variable rate loans, including basic loans without a package fee, come with redraw. Fixed rate loans may limit extra repayments, so check your loan terms.
Keep in mind that redrawing takes money back out of your loan, so your loan balance goes up again. This can matter for tax if the loan is ever linked to an investment property, which we cover below.
Offset vs Redraw at a Glance
Interest saving: both reduce interest in the same way. Every dollar in your offset, or paid into your loan for redraw, reduces the balance you're charged interest on.
Access to your money: an offset works like an everyday account. Redraw usually needs a request and may come with limits, minimums or delays.
Cost: an offset often comes with a package fee, account fee or higher rate. Redraw is commonly included at no extra cost.
Loan balance: with an offset, your loan balance stays the same and your savings sit beside it. With redraw, your loan balance goes down, then back up if you redraw.
Tax: money in an offset stays separate from the loan, which can help if the property becomes an investment. Redrawing from an investment loan for personal use can reduce the interest you're able to claim.
Spending habits: offset funds are easy to spend. Redraw adds a step, which some people find helps them leave the money alone.
A worked example
Say you have $50,000 in savings and a hypothetical variable rate of 6.5% p.a. These figures are for illustration only.
Kept in an offset: the $50,000 reduces your interest by about $3,250 over a year. If the offset costs $395 a year, you are about $2,855 ahead, and the money stays in an everyday account you can use at any time.
Paid into the loan with redraw: the same $50,000 reduces your interest by about $3,250, with no package fee, so you keep the extra $395. The trade-off is access. Getting the money back means requesting a redraw under the lender's rules, and redrawing could affect tax deductions if the property is ever rented out.
The interest saving is the same either way. The offset fee pays for easy access and keeps your savings separate from the loan balance. Redraw costs less but gives you less flexibility. If the offset loan also has a higher rate, include that difference too.
Offset or Redraw: Which May Suit You?
There's no single right answer. The better fit depends on your loan, your savings habits and your plans for the property. The points below are general things to consider, not a recommendation for your situation.
An offset account may be worth considering if:
The loan is on the home you live in. Interest on your own home isn't tax deductible, so reducing it is often a priority. Keeping savings in an offset, rather than paying them into the loan, also keeps your options open if you later move out and rent the property.
You have one home loan to focus on. With a single loan, it's clear where your savings are working. If you have more than one loan, think carefully about which loan the offset is linked to, and speak with your accountant.
You'll keep more in the account than the feature costs. Compare the interest you expect to save with the fees and any rate difference, as in the worked example above. If your balance will usually be low, the fee may outweigh the saving.
You want a buffer you can reach quickly. For emergencies, a change in work or an unexpected bill, the money is there when you need it.
You're saving for a large purchase. Money set aside for a renovation, car, school fees or a future property deposit can reduce your interest until you spend it.
You'd like your pay to work for you. Having your income paid into the offset means even money you'll spend later in the month reduces interest while it sits there.
A redraw facility may be worth considering if:
You'd rather not pay for an offset. If your spare cash is modest, or the fee would cancel out most of the saving, a loan with redraw and no package fee may cost less overall.
You're comparing a basic loan with a sharper rate. Loans without an offset sometimes come with a lower rate than a lender's packaged loans. Compare the total cost of each.
You want to see your loan balance go down. Extra repayments reduce the loan itself, so your progress shows on every statement. Some lenders may also let you ask for your minimum repayment to be recalculated on the lower balance, which can lower your monthly repayments. Policies differ, so ask your lender before relying on this.
You'd like a little distance from your savings. Because redraw takes an extra step, it can make it easier to leave the money alone.
The property will stay your home. The tax downsides of redraw mainly matter when loan interest is deductible. If you're confident the property will remain your home, this may matter less.
You're on a fixed rate that allows extra repayments. If your fixed loan doesn't have an offset, extra repayments with redraw (within the lender's limits) may be another way to put spare cash to work.
Why Tax Matters if You Invest or Might Rent Out Your Home
For a home you live in, the interest saved through an offset or redraw is generally the same. For investors, or anyone who might turn their home into a rental later, the difference can be significant.
Redraw and investment loans: the ATO says that to the extent a loan is used for a private purpose, you must apportion the interest. If you redraw from an investment loan to pay for a holiday, a car or your own home, the interest on that portion generally isn't deductible.
Turning your home into a rental: if you pay extra off your home loan and later redraw it, what counts for tax is generally what the redrawn money is used for. Keeping savings in an offset instead leaves the loan balance as it is, which may help if you move out and rent the property.
Offset savings vs savings account interest: interest earned on a bank account is generally income you need to declare. An offset doesn't earn interest. It reduces the interest you pay, so there's no interest income to declare.
Tax rules depend on your circumstances, and we don't provide tax advice. Speak with your accountant or tax adviser before deciding how to set up your loan or where to keep your savings.
Before You Choose: A Quick Checklist
Compare the full cost. Look at the interest rate, any package fee and any monthly account fees together.
Ask about redraw rules. Check for minimum amounts, fees, limits and how quickly the money arrives.
Check fixed rate conditions. If you're fixing, find out whether extra repayments are capped and whether an offset is available.
Make sure your offset is linked. Moneysmart warns that if an offset isn't linked to your loan properly, you can miss out on interest savings. Check your statements, and act quickly if something looks wrong.
Think about the next few years. If there's a chance you'll rent out the property, that may change which feature suits you.
You may not have to choose. Many loans with an offset also include redraw, so you can use both.
Not Sure Which Suits Your Loan? Let's Talk
Offset accounts and redraw facilities can both help reduce the interest you pay. The better choice depends on how you use your money, what the feature costs, and your plans for the property.
If you're paying for an offset you rarely use, or your current loan doesn't have the features you need, it may be worth reviewing your loan. At Antigona Finance, we compare loans across a panel of more than 50 lenders and explain the features, fees and trade-offs clearly, so you can make an informed decision.
Book a no-obligation consultation to talk through your home loan.
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Frequently Asked Questions
What is an offset account?
An offset account is a transaction or savings account linked to your home loan. Its balance is subtracted from your loan balance when interest is calculated, so you pay less interest while your money stays accessible.
Is an offset account better than a redraw facility?
Neither is better for everyone. Both reduce interest by the same amount per dollar. An offset gives easier access to your money and can suit people who may later rent out their home. Redraw is often cheaper and can suit people who'd rather keep their savings out of easy reach.
Is an offset account worth it?
It depends on how much you'll keep in it and what it costs. Compare the interest you expect to save with any package fee, account fees or rate difference. Moneysmart notes that if your offset balance is always low, for example under $10,000, it may not be worth paying for.
Does money in an offset account earn interest?
No. Instead of earning interest, the balance reduces the interest charged on your loan. Unlike interest from a savings account, this saving generally isn't income you need to declare.
Can I have an offset account on a fixed rate loan?
Offset accounts are generally offered on variable rate loans. If you'd like the certainty of a fixed rate, some borrowers split their loan into fixed and variable portions, with an offset linked to the variable part.
Can a lender limit my access to redraw?
Yes. Depending on your loan terms, a lender may set a minimum redraw amount, charge a fee, limit how much you can redraw or delay access. Check your loan contract or ask your lender.
Does redrawing affect my tax deductions?
It can if the loan is linked to an investment. If you redraw from an investment loan for personal use, the interest on that portion generally isn't deductible. Speak with your accountant before redrawing from any loan used for investment.
Can I switch from redraw to an offset account?
Often, yes. Some lenders let you add an offset to an existing loan, while others require you to change products or refinance. Fees and rates may change, so compare the full cost first.
This information is general in nature only and does not take into account your personal objectives, financial situation, or needs. It should not be relied upon as personal financial or credit advice, please seek independent professional advice before making a decision based on this information. If you'd like more personalised information about your borrowing potential, reach out to us directly for a free consultation.
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