Offset vs redraw: which saves more?
Both cut the interest on your home loan — but they differ on access, tax and flexibility. How to choose.
Last updated 3 November 2026
Both an offset account and a redraw facility do the same headline job: they cut the interest on your home loan by reducing the balance you’re charged on. On the raw numbers they’re almost identical. Where they differ is access, tax and flexibility — and that’s what decides which is right for you.
How each one saves you interest
Home-loan interest is usually calculated daily on your balance. Both features shrink the balance interest applies to:
- Offset account — a everyday transaction account linked to your loan. If you owe $500,000 and hold $30,000 in the offset, you’re charged interest on $470,000. The $30,000 stays yours, fully accessible.
- Redraw — when you pay extra into the loan itself, that gets you ahead, and “redraw” lets you pull the surplus back out later. Pay an extra $30,000 off the $500,000 and you’re charged on $470,000 too.
For the same dollar amount, the interest saved is essentially the same. A dollar in offset and a dollar of redraw both save you one dollar’s worth of loan balance.
The real differences
Access
Offset money behaves like a normal bank account — instant access, card, transfers. Redraw often takes a little longer, may have minimum amounts, and some lenders can change or limit redraw availability.
Tax (this is the big one)
If you might ever rent out the home, the difference matters. Money in an offset is your own savings, so spending it doesn’t touch the loan. But redrawing re-borrows money — and if you redraw to spend on something private (a car, a holiday), that part of the loan loses its deductibility once the property is an investment. An offset sidesteps the whole issue.
Cost
Offsets sometimes carry a small annual package fee or a slightly higher rate; redraw is often free. If you’ll only ever keep a modest balance, a free redraw can be the cheaper choice.
Which should you choose?
- Choose an offset if you want instant access to your savings, keep a larger buffer, or might turn the home into an investment later.
- Redraw is fine if you want simplicity, a free feature, and you’re confident the home will stay your own residence.
Either way, the saving comes from the balance you park against the loan. See exactly how much time and interest a given balance saves with our mortgage offset calculator, or model the loan itself with the mortgage repayment calculator.
Work out your own numbers
Frequently asked questions
Is an offset account or redraw better?
For pure interest saving on the same balance, they're almost identical — both reduce the loan balance interest is charged on. An offset usually wins on flexibility and tax: your savings stay as your own money with instant access, which matters if you might later turn the home into an investment property. Redraw is simpler and often free, but the money is legally the lender's extra repayments until you pull it back.
Does an offset account save the same as making extra repayments?
Yes, roughly. A dollar sitting in an offset reduces interest by the same amount as a dollar of extra repayment or redraw, because interest is charged on (loan balance minus offset balance). The difference is access and tax treatment, not the interest saved.
Why does an offset matter for tax if I later rent out the home?
If you move out and rent the property, the loan interest can become tax-deductible. Money in an offset is your own savings, so withdrawing it doesn't change the deductible loan balance. But redrawing money re-borrows it — and if you spend that redraw on something private, that portion of the loan is no longer deductible. An offset avoids that trap.
Is money in an offset or redraw safe?
Offset savings are your funds in a transaction account linked to the loan, accessible instantly. Redraw is the lender holding your extra repayments; most lenders let you take it back, but some can reduce available redraw or change the terms, and access can be slower. Check your loan's conditions.