Key takeaways
- An offset account is a transaction account linked to your home loan, and its balance reduces the interest you are charged each day.
- A redraw facility lets you pull back the extra repayments you have made above your minimum.
- The big differences are accessibility, how interest is calculated and tax treatment, which matters most on investment loans.
- Offset money is usually instantly available; redraw can carry restrictions, fees or short delays.
This is one of the questions Andy gets most often, and the honest answer is that both can save you money, they just suit different people. Since 2000 he has set up plenty of loans both ways, and the right choice usually comes down to how you like to manage your cash and whether the property is your home or an investment.
How an Offset Account Works
An offset account is an everyday transaction account that sits alongside your loan. Whatever sits in it is offset against your loan balance when interest is worked out. So if you owe $400,000 and have $20,000 in your offset, you are only charged interest on $380,000. The offset balance reduces interest daily, and the money behaves like normal cash, you can spend from it, get paid into it and use the ATM.
How a Redraw Facility Works
A redraw facility works the other way around. When you pay extra repayments above your minimum, that money goes into the loan and brings your balance down. Redraw lets you take some of those extra payments back out if you need them. It still saves you interest while it sits there, but getting to it can involve restrictions, fees or processing delays.
The Key Differences
| Feature | Offset account | Redraw facility |
|---|---|---|
| Access to funds | Instant, via card and online banking | May have limits, fees or delays |
| How it saves interest | Balance offsets the loan daily | Extra repayments reduce the balance |
| Tax treatment (investment loans) | Generally cleaner for deductibility | Redrawing can affect deductibility |
| Typical cost | Often part of a package fee | Often free or low cost |
Which One Suits You
If you keep a decent balance ticking through your everyday account and want instant access, an offset usually wins. If you are disciplined, want to keep things simple and do not need a full transaction account, redraw can do the job for less. On investment loans the tax angle is important, because redrawing for personal use can muddy what is deductible, so this is worth a proper chat. Andy explains the trade-offs in plain English and will not push you towards a packaged offset you will never use. For more on structuring an investment loan, see offset and redraw investment loans.
The Next Step
Want help deciding which feature actually earns its keep for you? Take a look at the home loans page and get in touch with Andy.
Offset vs Redraw Questions
Does an offset account save more than redraw?
Not necessarily. Both reduce the interest you pay. The difference is access and, on investment loans, tax treatment. Andy can model both against how you actually use your money.
Can I have both an offset and redraw on the same loan?
Often, yes, depending on the lender and product. Andy can find a loan that offers the features you will use without paying for ones you will not.
Why does it matter for an investment loan?
Redrawing money for personal use can affect how much of your interest is tax deductible. An offset usually keeps things cleaner. It is worth getting advice before you set it up.
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