Is an offset account better than redraw?

They save the same interest dollar for dollar. An offset is more flexible and keeps your money clearly yours, which matters for tax if you ever rent the place out, while redraw is money inside the loan that you pull back. For most people an offset is the cleaner choice.

Does an offset save more than a savings account?

Usually yes, because the interest an offset saves is not taxed, while savings interest is. At a 30% marginal rate a 5% savings return is really about 3.5% after tax, whereas an offset returns your full loan rate untaxed.

What is the catch with redraw?

Redrawn money is technically new borrowing. If you later rent the property out, redrawn funds you spent on personal things can muddy how much loan interest you can claim. An offset keeps that line clean.

Offset vs redraw: which saves more?

Home loans › Introduction

Both an offset account and a redraw facility work the same way: they reduce the loan balance you're charged interest on, so your money effectively "earns" your mortgage rate, and unlike savings-account interest, it isn't taxed. Dollar for dollar, they save the same interest. The difference is everything around that.

How each one works

An offset account is a normal transaction or savings account linked to your loan. Its balance is subtracted from the loan before interest is calculated, and you can spend from it any time like a regular account. A redraw facility lets you pull back the extra repayments you've made ahead of schedule. The money is inside the loan until you ask for it.

Dollar for dollar, they save the same interest. The difference is everything around that.

Where they differ

The interest saved is identical. What changes is access, tax exposure if things change later, discipline and cost:

Access.Offset funds are yours, instantly, like any bank account. Redraw can be slower, sometimes capped per transaction, and lenders can change or freeze the terms.

Tax, if you ever rent the place out.This is the big one. Money in an offset is your savings, and taking it out doesn't touch the loan. Redrawing, by contrast, is technically new borrowing; if you later rent the property out, redrawn funds used for personal spending can muddy the deductibility of your loan interest. Offset keeps that clean.

Discipline.Redraw is a little harder to dip into, which some people prefer.

Cost.Offset accounts sometimes carry a small package fee, so make sure the interest saved beats it.

Offset vs a savings account

An offset usually beats parking cash in savings, because savings interest is taxed and offset interest saved isn't:

Savings account

5% taxed

At a 30% marginal rate, a 5% savings return is really about 3.5% after tax. The ATO takes its share of the interest every year.

Offset account

Full rate, untaxed

An offset returns your full mortgage rate, and none of it is taxable income because it's interest you never paid, not interest you earned.

For anyone with a home loan, that's hard for cash savings to beat.

The bottom line

If you might ever turn the home into an investment, or you want your savings fully liquid and clearly yours, offset is usually the cleaner choice. If you just want somewhere to stash extra repayments and value the tiny bit of friction, redraw is fine. Either way, keeping cash against the loan almost always beats a taxed savings account.

See what an offset saves you

Enter your loan, rate and offset balance for the interest saved and years knocked off.

Offset calculator →

General information only, not financial advice.

Offset vs redraw: which saves more?

How each one works

Where they differ

Offset vs a savings account

The bottom line

Common questions

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