Offset accounts and redraw facilities both let you reduce the interest you pay while keeping access to your money. They sound similar, but there are important differences, especially if you might ever turn your home into an investment property.
How an offset account works
An offset account is a transaction or savings account linked to your home loan. The balance is "offset" against your loan when calculating interest.
Example: - Loan: $600,000 - Offset balance: $40,000 - You pay interest on $560,000
Your money stays in a separate account that you can use like any bank account, with a card and online banking.
How redraw works
Redraw lets you access extra repayments you've made into your loan.
Example: - Loan: $600,000 - You've paid an extra $40,000 - Balance: $560,000 - Available redraw: $40,000
The money is technically part of your loan. To use it, you redraw it back to a transaction account.
The key differences
| Offset | Redraw | |
|---|---|---|
| Where is the money? | In a separate account | Paid into the loan |
| Interest saving | Same | Same |
| Access | Instant, like any account | Usually online, may have limits or fees |
| Can the lender restrict access? | Rarely | Lenders can reduce or limit redraw in some circumstances |
| Tax if the home becomes an investment | Money in offset hasn't reduced the loan | Redrawn funds count as new borrowing |
| Typical cost | Often part of a package with an annual fee | Usually free |
The investment property trap
This is the big one. Say you pay $100,000 extra into your loan over the years. Then you move out and rent the property, and redraw the $100,000 to buy a new home.
The ATO treats the redrawn money as a new loan used for a private purpose. So interest on that $100,000 isn't deductible against the rental income.
If the $100,000 had been in an offset, your loan balance would have stayed at the original amount. When you move out and rent the property, the whole loan is investment debt, and you can withdraw your offset savings for the new home without affecting deductibility.
If there's any chance your home will become an investment, an offset is usually the better choice. Confirm the details with your accountant.
When redraw is fine
- You'll stay in the property long term
- You don't want an annual fee
- You prefer savings to be harder to spend
Fixed rate loans
Many fixed loans don't offer full offset, and redraw may be limited. Check before you fix.
Frequently asked questions
Do I earn interest in an offset account?
No. Instead, you save interest on your loan, which is effectively tax-free.
Can I have multiple offset accounts?
Many lenders allow several offsets linked to one loan, handy for budgeting.
Does an offset reduce my repayments?
Usually not. Your repayment stays the same, but more goes towards principal, so you pay the loan off faster.
Want a loan with the right features for your plans? Call Finfident on 0424 545 654.
This article is general information only and doesn't take into account your objectives, financial situation or needs. Figures, rates and scheme rules are current as at October 2026 and can change. Finfident Finance Brokers (ABN 94 679 280 801) is Credit Representative 569374 of Outsource Financial Pty Ltd (ACN 131 090 705), Australian Credit Licence 384324.