Both a redraw facility and an offset account can save you money on home loan interest – but they work in different ways. Understanding the difference can help you choose the one that’s right for your lifestyle and loan goals.

Many borrowers assume they do the same thing, but the choice between redraw and offset can have a big impact on your cash flow, lifestyle, tax position, and long term loan strategy. Understanding how each feature works is the key to choosing the option that aligns with your goals.

Below, we break down the differences, the pros and cons, and how to decide which one fits your financial habits.

What’s a Redraw Facility?

A redraw facility allows you to make extra repayments directly onto your home loan. These additional repayments reduce your loan balance, which in turn reduces the interest you pay. Over time, consistent extra repayments through a redraw facility can help you shave years off your loan term.

The major advantage of a redraw facility is that it gives you the best of both worlds. You can aggressively pay down your loan, but still have the ability to access those extra repayments later if something unexpected comes up. Whether it is an emergency expense, a renovation project, a holiday, or a new car, the money you have paid into your redraw can be accessed when needed.

Best for:

• Borrowers who want to chip away at their loan faster
• People comfortable with disciplined savings habits
• Homeowners who do not need daily access to their funds
• Anyone who prefers their extra money to directly reduce the loan balance through redraw

Watch out for:

• Some lenders place limits on how often you can redraw
• There may be fees each time you use the redraw function
• Processing times can be slower than withdrawing from an offset
• If the loan becomes an investment later, redraw history can affect tax deductibility

A redraw facility can be incredibly powerful if your goal is long term repayment discipline and reducing interest as quickly as possible.

What’s an Offset Account?

An offset account is a transaction account that sits beside your home loan. Any money sitting in your offset account reduces the loan balance your lender charges interest on. If you have fifty thousand dollars in your offset and a five hundred thousand dollar loan, interest is charged on four hundred and fifty thousand instead of the full amount.

The biggest difference between an offset account and a redraw facility is accessibility. Money in an offset account is yours to spend, move, transfer, or use instantly. It is not locked into the loan. You can use an offset for everyday bills, salary deposits, savings, and general cash flow. As long as the money stays in the offset, it reduces interest.

Best for:

• People who want instant, daily access to their funds
• Borrowers with a large or growing savings balance
• Anyone who prefers maximum flexibility and control
• Homeowners who want all their money working to offset interest while remaining accessible

Watch out for:

• Offset accounts often come with higher package fees
• If you do not keep much money in your offset, you may not save more than the cost of the fees
• Some lenders offer multiple offset accounts, while others do not
• Not every loan product offers a full offset, especially fixed rate loans

Which One Is Better?

 The truth is, there is no universal winner. Both redraw and offset accounts have their place — the right choice depends entirely on your financial habits and the type of structure you want.

Choose an offset account if:

• You want maximum flexibility without restrictions
• You prefer keeping your savings accessible for bills, travel, or emergencies
• You are a strong saver and regularly have surplus cash
• You want an account that works like everyday banking while reducing interest
• You want to combine budgeting and loan savings in one place

Choose a redraw facility if:

• You want to reduce your loan balance as quickly as possible
• You prefer a disciplined structure that makes spending less tempting
• You do not need your extra repayments available every day
• Your goal is long term interest reduction without distractions
• You are comfortable with less immediate access to those funds

Some borrowers even use both by choosing a loan with an offset account and making extra repayments through redraw when they know they do not need fast access.

Both redraw and offset features can save you serious money over the life of your home loan.

The real question is which structure suits the way you spend, save, and plan. If you are unsure whether an offset account or a redraw facility will give you the best long term outcome, getting tailored lending advice can make the decision clearer.

Not sure which option is right for you?

Book a free consultation so we can review your loan, your lifestyle, and your long-term goals to recommend a structure that supports you now and in the future.