An offset account is a separate bank account linked to your mortgage. Money in this account directly offsets your loan balance for daily interest calculations, but because the cash remains separate, withdrawals are treated as standard bank transactions rather than new borrowing.
A redraw facility allows you to deposit extra cash directly into your loan to pay down the principal. When you draw those extra funds back out, you are technically re-borrowing against the loan.
While both an offset account and a redraw facility help you save money by reducing the interest-bearing portion of your home loan, they function differently in terms of access, flexibility and tax treatment.
Feature | Offset account | Redraw facility |
Account type | Separate transaction account linked to loan | Feature built inside your home loan account |
Access to funds | Instant via debit card, ATM, or online banking | Online transfer (may involve processing delays or limits) |
Impact on loan balance | The money in this account offsets your loan balance, reducing the interest charged. | Extra repayments sit within your loan, reducing your loan balance and interest costs |
Tax implications (Investment) | Withdrawals do not affect tax deductibility | Personal redraws reduce tax-deductible loan interest |
Associated costs | Often carries monthly or annual package fees | Usually free, though some basic loans charge per redraw |
Offset | Redraw facility |
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Which option saves more interest – an offset account or a redraw facility?
If the dollar amount sitting in an offset account is identical to the extra repayments sitting in a redraw facility, both will save you the same amount of interest on a 100% offset home loan.
Can I have both an offset account and a redraw facility on the same home loan?
Yes, many lenders allow you to link multiple sub-accounts (e.g., for daily spending, emergency savings and bill buckets) to a single variable home loan. The combined balances across all accounts work together to reduce your total interest.
Are there limits on how much money I can redraw or withdraw from offset?
Offset accounts generally have no withdrawal limits beyond standard daily transaction limits. Redraw facilities, depending on the lender, may enforce minimum withdrawal amounts (e.g., $100 per transfer) or daily maximum caps.
