Difference between offset and redraw
An offset account is a transaction account that’s linked to your home loan. The money in this account ‘offsets’ your loan balance, so you’re only charged interest on the difference. Redraw is a feature that lets you access extra repayments you've made on your loan, allowing you to withdraw those funds if needed.
Both an offset account and a redraw facility can reduce the interest you pay by lowering your loan’s effective balance – but they work in different ways.
How they work…
Redraw facility
You save on interest because the extra repayments you've made reduce your loan balance, even though you can still access those funds through the redraw facility if needed.
Offset account
Saves you interest by reducing the loan balance your lender uses to calculate interest, based on the money sitting in your linked offset account.
Quick Comparison: Offset vs Redraw
What is it? | |
Offset | A transaction account linked to your home loan. |
Redraw | A home loan feature that applies to the loan account itself. |
How does it save you money? | |
Offset | Money in your offset account reduces the balance of your home loan that interest is charged on. |
Redraw | It means you can make extra repayments on your home loan but access that money again if you need it. |
Which home loans offer it? | |
Offset | Widely available on variable home loans (but not all) and a much smaller number of fixed-rate loans. |
Redraw | Virtually all variable-rate home loans and some fixed-rate loans (there is often a limit on extra repayments with a fixed loan). |
Is there a cost? | |
Offset | Some lenders charge an extra home loan fee to access offset or a higher interest rate may apply. |
Redraw | Online redraws are generally free but there may be a fee for redraws carried out at a branch or using phone banking. |
How can I withdraw/spend money? | |
Offset | Generally the same way you would with any other transaction account (e.g. using a debit card). |
Redraw | Via bank transfer from your home loan account to another bank account (you won’t be able to use a debit card). |
Are there limits on how much interest you can save? | |
Offset | No, if it’s a 100% offset account. But some loans only offer ‘partial offset’ (e.g. 50%). |
Redraw | Usually not on a variable rate home loan, but extra repayments may be limited if available on a fixed loan. |
Are there limits to how much I can withdraw? | |
Offset | No, you can withdraw any funds up to the balance of the account. |
Redraw | Generally not, but some fixed loans have limits on how much extra you can pay and therefore have available to redraw. |
| Offset | Redraw | |
|---|---|---|
What is it? | A transaction account linked to your home loan. | A home loan feature that applies to the loan account itself. |
How does it save you money? | Money in your offset account reduces the balance of your home loan that interest is charged on. | It means you can make extra repayments on your home loan but access that money again if you need it. |
Which home loans offer it? | Widely available on variable home loans (but not all) and a much smaller number of fixed-rate loans. | Virtually all variable-rate home loans and some fixed-rate loans (there is often a limit on extra repayments with a fixed loan). |
Is there a cost? | Some lenders charge an extra home loan fee to access offset or a higher interest rate may apply. | Online redraws are generally free but there may be a fee for redraws carried out at a branch or using phone banking. |
How can I withdraw/spend money? | Generally the same way you would with any other transaction account (e.g. using a debit card). | Via bank transfer from your home loan account to another bank account (you won’t be able to use a debit card). |
Are there limits on how much interest you can save? | No, if it’s a 100% offset account. But some loans only offer ‘partial offset’ (e.g. 50%). | Usually not on a variable rate home loan, but extra repayments may be limited if available on a fixed loan. |
Are there limits to how much I can withdraw? | No, you can withdraw any funds up to the balance of the account. | Generally not, but some fixed loans have limits on how much extra you can pay and therefore have available to redraw. |
According to our recent survey, one in four Australians use a home loan offset account to hold their savings. Offset accounts were especially popular among Gen X (30%) and Millennials (29%).
Which is better: Offset or redraw?
In short, redraw facilities are often more cost-effective for owner-occupiers, while offset accounts may offer greater tax and flexibility benefits for investors. Ultimately, the better option depends on your personal situation and how much access you need to your funds.
We asked two experienced mortgage brokers to explain which types of borrowers are better suited to an offset account versus a redraw facility.
“Both features work similarly in that they help reduce your interest costs,” explains Money.com.au’s home loans expert and mortgage broker, Mansour Soltani. “But whether one suits you better depends on your financial habits.”
Rebecca Jarrett-Dalton, mortgage broker at Two Red Shoes, says the best option often comes down to how you already manage your money.
“We ask clients how do you bank, how do you save, what do you do with your money? Then we try to match their good banking habits to a loan that's going to suit them.”
Who may benefit more from an offset account?
People who use one account for all their banking and have bills and payments automated may prefer the convenience of an offset account, Rebecca says.
However, simply having an offset account isn’t enough – you need to use it strategically to see real benefits.
“There’s not much point in taking out a loan with an offset unless you're going to keep a reasonable amount of cash in that account regularly,” she explains. “The exception is when you get multiple offsets at no extra charge – then it’s worth it, because every little bit helps.”
Consider offset for investment properties
Mansour Soltani , Money.com.au's Home Loans Expert
"An offset account allows you to withdraw funds for personal use, without it impacting any home loan interest tax deductions. On the other hand, accessing money through redraw may limit your ability to claim tax deductions. Always speak to your accountant or financial advisor to fully understand the tax implications based on your situation."
Mansour Soltani , Money.com.au's Home Loans Expert
Pros and cons of offset
Pros
- You save on interest by reducing the loan balance used to calculate interest.
- You have instant, unrestricted access to your money just like a normal bank or savings account.
- It helps you manage everyday spending and savings in one place.
- Ideal for investors wanting to park rental income or extra funds without reducing loan principal.
Cons
- Most offset accounts come with annual package fees or higher interest rates.
- They’re only effective if you keep a decent balance in the account.
- Not all home loans offer a full 100% offset feature.
- Requires discipline to avoid dipping into funds meant for investment use.
Who may benefit more from a redraw facility?
Mansour says a redraw facility can be great value for owner-occupiers, especially since it’s often included with a home loan at no extra cost.
“If you don’t consistently hold a decent amount of money in your account, the benefits of offset may be minimal,” he explains. “Redraw lets you still make extra repayments and access them when needed – without needing a high savings buffer.”
A simpler option for hands-on borrowers
Rebecca Jarrett-Dalton, Expert Mortgage Broker
“For people who are happy to manually move their money around, a redraw option might be enough. That way, they don't incur the offset account fee, because 90% of loans that have an offset will come with a package fee.”
Rebecca Jarrett-Dalton, Expert Mortgage Broker
Pros and cons of redraw
Pros
- You’re actually reducing your debt through the extra repayments while still being able to access that money.
- Redraw is usually free or low-cost, making it a more affordable option than an offset account – especially for owner occupiers.
- It encourages disciplined saving, since accessing funds isn’t as instant or tempting as an everyday account.
Cons
- Funds may take time to access and can be subject to limits or lender conditions.
- Redrawing from an investment loan may affect tax deductibility, so it’s important to seek financial advice before using it for personal expenses.
- Some lenders may restrict how often or how much you can redraw.
Sean Callery, Editor of Money.com.au
“Ask your lender if you can get the best of both worlds. I’ve split my mortgage between a basic low rate loan with redraw, and an offset loan with a slightly higher rate. The majority of the loan balance is on the lower-rate, with a smaller portion in the offset loan. Doing it this way means we can retain day-to-day access to all of our savings by using the offset account, but we’re not paying the higher rate on the full loan balance.”
Sean Callery, Editor of Money.com.au
