Offset accounts and redraw facilities both do the same headline job, your spare cash reduces the interest on your home loan. The differences are in access, tax treatment and fees, and they matter more than most borrowers realise.
How each one works
An offset account is an everyday transaction account linked to your loan: a $40,000 balance means you’re only charged interest on the loan minus $40,000. Redraw is different, you make extra repayments into the loan itself, and the lender lets you take them back out later.
Where they differ
- Access: offset money is yours, instantly, like any bank account. Redraw is the lender’s facility: minimums, processing times and even the right to cancel redraw sit with them.
- Tax: critical for future investors. If you ever convert your home to a rental, money pulled from redraw reduces the deductible loan balance; money in offset doesn’t. Same dollars, very different tax outcome.
- Fees: full offsets often live on package loans with annual fees ($250–$400). Redraw is usually free.
- Discipline: redraw’s friction can be a feature if easy-access savings tend to evaporate.
Which saves more interest?
Dollar for dollar, they save identically, interest is calculated on the same net balance. The real question is whether the offset’s package fee is justified by your average balance. Rough rule: an offset needs roughly $8,000–$12,000 sitting in it consistently to beat a fee-free loan with redraw.
See what your savings balance does to your loan term and total interest.
Open the offset calculator →Choosing for your situation
Salary-earners with healthy balances usually win with a true offset; disciplined savers on tight margins often do better on a bare low-rate loan with redraw; and anyone who might rent out their current home later should default to offset for the tax flexibility. Nathan can tell you which camp you’re in inside one call.