Park $50,000 against a $500,000 loan at 6% and both an offset and a redraw save you roughly $195,000 in interest. The real differences are access, tax and a $395 annual fee, and they bite hardest if you ever rent the place out.
Adjust the variables below to simulate outcomes, compare rates, and see real-time projections.
A direct comparison of features, rules, limits, and eligibility requirements.
| Feature / Detail | Offset Account | Redraw Facility |
|---|---|---|
Interest saving | Identical for the same balance: interest accrues on loan minus offset | Identical for the same balance: interest accrues on the reduced principal |
Where the money legally sits | A separate transaction account in your name, linked to the loan | Inside the loan itself: extra repayments you may ask to draw back |
Access to the cash | Instant: debit card, transfers, ATMs | Transfer request to the lender; daily limits can apply, and lenders can restrict redraw in hardship |
Tax if the home becomes a rental | Withdrawing offset cash does not touch the loan: full interest stays deductible | Redrawing for personal use contaminates the loan purpose and permanently shrinks your deduction |
Typical cost | Package fee of roughly $300-$400 a year, sometimes a slightly higher rate | Usually free on basic variable loans |
Spending discipline | Cash is one tap away: easy to erode | Friction of a redraw request keeps the money working on the loan |
Analyze the advantages and drawbacks of each financial product before making a decision.
Priya and Josh owe $500,000 at 6% over 30 years: repayments of about $2,998 a month, and a scary total of roughly $579,000 in interest if they just pay the minimum. They also hold $50,000 in savings.
Park that $50,000 in an offset (or as extra repayments with redraw) and interest is charged on $450,000 instead. Keeping the same monthly repayment, the loan is effectively cleared in about 23 years instead of 30, and lifetime interest drops to roughly $383,000. That is close to $195,000 saved: from money they still own and never handed over.
This saving is identical for both facilities. Banks market them as different products, but the compounding engine is the same. Every other difference on this page is about what happens when life changes, and that is where borrowers actually lose money.
Suppose that $50,000 could earn 4.75% in a high-interest savings account instead, $2,375 a year. Sounds comparable to the $3,000 of mortgage interest it cancels in the offset. It is not, because the ATO taxes savings interest as income while interest you never pay is not income at all.
On a 30% marginal rate plus 2% Medicare levy, the $2,375 shrinks to about $1,615 after tax. The offset's $3,000 stays $3,000. The offset effectively pays a guaranteed, tax-free 6%: nearly double the after-tax savings rate, with zero risk.
The one honest caveat is the fee. At $395 a year, an offset needs an average balance of about $6,600 at 6% just to break even. Below that, a fee-free redraw or plain savings account genuinely wins. Above $20,000, it is not close.
Here is the scenario that fills accountants' inboxes every July. A couple pays $100,000 extra into their home loan via redraw. Years later they upgrade homes, keep the old place as a rental, and redraw the $100,000 for the new deposit. The ATO's view: that redraw is new borrowing for a private purpose, so the interest on that $100,000 slice of the rental loan is never deductible again.
On $100,000 at 6%, that is $6,000 a year of interest that stops being deductible: costing roughly $2,280 a year at a 38% marginal rate, every year the loan runs. The identical move with an offset costs nothing: withdrawing your own account balance is not borrowing, the loan stays untouched at $500,000, and every dollar of its interest keeps its rental deduction.
The practical rules: if property investment is even a maybe, keep spare cash in offset, not redraw. Never mix personal and investment redraws on one loan. And if you are already deep in redraw and plans have changed, see an accountant before you touch the money: loan splitting can sometimes contain the damage, but only before the withdrawal.
The interest arithmetic is a tie, so decide on the other three factors. If there is any realistic chance your home becomes an investment property, the offset wins outright: one personal-use redraw can permanently cost you thousands per year in lost deductions, and no annual fee comes close to that damage. If you are certain you will stay an owner-occupier and your buffer is modest, a free redraw on a basic loan beats paying $395 a year for flexibility you rarely use. Big savers holding $50,000+ should pay for the offset without hesitation: the fee is noise next to roughly $3,000 a year of tax-free interest savings and unrestricted access.
Future property investors, anyone who might rent out their home, and savers holding large balances who want tax-free interest savings with everyday access.
Committed owner-occupiers on basic no-fee loans with modest buffers, and anyone who spends what they can see.
The rules and figures on this page are researched from official primary sources:
