Offset Account vs Redraw: Which Is Better?
Both offset accounts and redraw facilities reduce the interest you pay on your home loan. But they work differently, and the wrong choice can cost you thousands — especially if you have an investment property.
How They Work
An offset account is a separate transaction account linked to your loan. Your balance reduces the loan amount for interest calculation purposes, but the money stays in your account. A $500,000 loan with $50,000 in offset means you pay interest on $450,000.
A redraw facility lets you make extra repayments on your loan and then withdraw (redraw) those extra payments later. The money goes directly into your loan, reducing the principal. When you redraw, you're essentially borrowing it back.
The Critical Difference: Tax
This is where it matters. If you have an investment property loan, interest is tax-deductible. With an offset account, the loan balance doesn't change — you're just reducing interest temporarily. If you later move money out of the offset to buy an investment property, the full loan interest remains deductible.
With redraw, you've actually paid down the loan. If you redraw to buy an investment property, the ATO may treat that redrawn amount as a new borrowing for personal purposes — meaning the interest on that portion is NOT deductible. This can cost you thousands in lost tax deductions over the life of the loan.
Rule of thumb: if there's any chance you'll convert your home to an investment property in the future, use an offset account, not redraw.
Accessibility
Offset accounts work like a normal bank account — tap your card, transfer money, pay bills. Your money is always accessible. Redraw may have restrictions: some lenders charge fees, impose minimum redraw amounts, or take 1-2 business days to process. Some lenders can even restrict redraw access at their discretion.
When Redraw Wins
If you're disciplined about not touching your savings and want the simplest setup, redraw is fine for an owner-occupied home you never plan to rent out. Redraw facilities often come free with basic home loans, while offset accounts may require a more expensive loan package ($10-$15/month).
Calculate Your Offset Savings →The Bottom Line
For most Australians, an offset account is the safer choice. It gives you full accessibility, clean tax treatment, and the same interest savings as redraw. The small monthly fee for the offset package pays for itself many times over if your tax situation changes.