Both features let spare cash reduce the interest you pay. The difference is where the money sits, and that matters more than most people expect.
How an offset account works
An offset is a transaction account linked to your loan. Its balance is subtracted from the loan balance before interest is calculated. With a $500,000 loan and $40,000 in offset, you pay interest on $460,000. The money stays yours, in a separate account, and you can spend it like any savings.
How redraw works
Redraw lets you take back extra repayments you’ve made into the loan itself. The interest saving is the same while the money is in the loan, but technically you’ve repaid debt, and taking it out is new borrowing from that loan.
The key differences
| Offset | Redraw | |
|---|---|---|
| Where the money sits | Separate account in your name | Inside the loan |
| Access | Like an everyday account | Request through the lender; limits may apply |
| Cost | Often on packaged loans with an annual fee | Usually included |
| If the home becomes an investment | Savings stay separate from the debt | Redrawn money may be treated as new borrowing |
Why it matters if you might rent the property out
If there’s a chance your home becomes an investment property later, keeping savings in an offset rather than paying down the loan can keep your options open. Withdrawing from redraw for a new purpose may change how that portion of the loan is treated. Check with your accountant how this applies to you.
Which is better?
If you hold meaningful savings, or might convert the property to an investment, an offset is often worth its fee. If you mainly make small extra repayments and rarely touch them, redraw may do the job at lower cost. We compare the real cost, fees included, across lenders.