Offset Accounts vs Redraw: Which Saves You More?

Updated 27 Sep 2025 · 5–7 min read

At a glance: Both offset accounts and redraw facilities reduce the interest you pay by lowering your effective loan balance. Offset keeps funds in a linked transaction account (fast access, often with account fees). Redraw stores extra repayments inside the loan (usually fewer fees, slower access). The best option depends on your cash flow, access needs, and future plans for the property.

Quick Definitions

Offset account: A bank account linked to your home loan. The balance offsets the loan for interest calculations (e.g. $500k loan – $20k offset = interest charged on $480k).
Redraw facility: Extra repayments paid into your loan that you can withdraw (“redraw”) later. While inside the loan, they reduce interest.

Key Differences

Access speed: Offset = instant access like a normal account. Redraw = may take 1–2 business days and can have limits.
Fees: Offsets may carry monthly package fees; redraw is often free (check your lender).
Discipline vs flexibility: Offset is flexible (tempting to spend). Redraw is “out of sight,” helping disciplined repayment habits.
Investment planning: Offsets don’t change the loan principal, which can be useful if the property may become an investment later.

Scenario Comparison

Scenario 1 — Offset Account (High Cash Balance)

Setup: Sarah and James have a $500,000 loan at 6.00% p.a. They maintain an average $20,000 in their offset.

Effective balance for interest = $480,000.
Estimated annual interest saving: ~$1,200 (≈$100/month).
Funds remain fully liquid for emergencies or opportunities.
Over 5 years, they save roughly $6,000 in interest while keeping access to cash.

Scenario 2 — Redraw Facility (Regular Extra Repayments)

Setup: Alex and Priya also have a $500,000 loan at 6.00% p.a. They pay $500 extra per month above the minimum into their loan.

Extra over 5 years = $30,000 of principal reduction.
Estimated interest saving over 5 years: ≈ $5,000+ compared to making minimum repayments only (actual saving depends on compounding and repayment schedule).
Access may be slower and some lenders set redraw limits or minimums.
Because the loan principal is reduced, later redrawing for non-investment purposes can affect tax deductibility if the property becomes an investment. Seek advice.

Takeaways: If you consistently hold larger cash balances and value instant access, an offset often wins on convenience (and future flexibility if you might rent the property out). If you want enforced discipline and minimal fees — and don’t need instant access — redraw can push your balance down faster and save similar or better interest over time.

Which Option Saves You More?

Your result depends on your average spare cash and how often you dip into it. Model both with our Repayment Estimator — try adding an average offset balance versus scheduling regular extra repayments to see the impact on total interest and loan term.

When to Favour an Offset

You usually keep $10k–$50k+ in savings.
You want everyday, instant access to funds.
You may convert the property into an investment later and want to preserve deductibility.

When to Favour Redraw

You want built-in discipline: “set and forget” extra repayments.
You’re okay with slower access and any lender limits.
You prefer to avoid package/account fees associated with offsets.

General information only — not financial advice. Figures are illustrative and based on common lending practices as at September 2025. Lender fees, policies and your repayment schedule will change outcomes. Speak with a professional before making decisions.