Strategy
Offset vs redraw: which actually saves you more?
6 min read · By Daniel Lagden · 12 June 2026
The short version
- Both reduce the balance you pay interest on, but they're structurally different.
- An offset is a separate transaction account; redraw is extra repayments you can pull back.
- Offset is usually cleaner for future investment / tax purposes.
- The 'best' choice depends on access, discipline, fees and your future plans.
Offset and redraw are often described as the same thing. They're not. Both can save you interest by reducing the balance your interest is calculated on, but how they do it — and what it means down the track — is different enough to matter.
How an offset works
An offset is a regular transaction account linked to your loan. The balance in it is 'offset' against your loan balance for interest purposes. Keep $40,000 in an offset against a $500,000 loan and you're only charged interest on $460,000 — while that $40,000 stays fully yours to spend whenever you like.
How redraw works
Redraw is the pile of extra repayments you've made above the minimum. Those extra payments reduce your balance and your interest, and you can usually 'redraw' them later if you need them. The catch: once money is paid into the loan, pulling it back can have different tax and access characteristics than money sitting in an offset.
Why the difference matters
- Access — offset funds are typically instantly available like any bank account; redraw can have limits or processing times.
- Future investment — if you might turn this home into an investment later, an offset usually keeps your tax position cleaner than paying down and redrawing. Talk to your accountant.
- Discipline — some people spend an offset too easily; for them, redraw's slight friction helps.
- Cost — offset accounts sometimes come with a package fee, so weigh the fee against the interest saved.
This is general information, not tax advice. The investment and tax consequences of redraw versus offset can be significant — confirm your situation with your accountant before relying on either.
Run the numbers
Frequently asked questions
Is an offset account worth the package fee?
If the interest you save on your offset balance comfortably exceeds the annual package fee, it's usually worth it. As a rough guide, the more cash you keep in offset, the easier the fee is to justify. We can run your numbers.
Can I have both offset and redraw?
Many loans offer both. Some borrowers use an offset for everyday cash and redraw as a secondary buffer. The right mix depends on your spending habits and future plans.
