Offset Account vs Redraw —
What Is the Difference?

How an offset account works

An offset account is a standard transaction or savings account that is linked to your home loan. The balance in the offset account is deducted from your loan balance for interest calculation purposes. If you have a $500,000 loan and $50,000 in your offset account, you pay interest on $450,000. The more money in the offset, the less interest you pay.

Offset accounts are fully liquid — you can deposit and withdraw at any time. Your salary can go directly into the offset, reducing your daily interest charge. There are no restrictions on access.

How redraw works

A redraw facility allows you to access extra repayments you have made above the minimum required amount. If your minimum monthly repayment is $3,000 and you have been paying $3,500, the extra $500 per month accumulates as available redraw. You can withdraw these funds when needed.

The key difference is that redraw is not as flexible. Some lenders impose minimum withdrawal amounts, processing times, or fees. And for investment properties, the tax treatment of redraw can be different from offset — withdrawn funds used for personal purposes may not be tax-deductible, even though the original loan was for an investment.

Which should you choose?

If you value maximum flexibility and have significant savings, an offset account is generally better. If your extra repayments are modest and you prefer a simpler setup, redraw may be sufficient. For investors, offset is almost always preferred because of the tax implications of redraw. Read our complete guide to how home loans work for more on loan features.

Frequently asked questions