Offset accounts and redraw facilities are two of the most commonly misunderstood home loan features. Both can help reduce the interest you pay over time, but they work in different ways.
How an offset account works
An offset account is a separate everyday transaction account linked to your home loan. The balance in this account "offsets" against your loan balance when interest is calculated — so if you have a $400,000 loan and $20,000 sitting in a linked offset account, you're generally only charged interest on $380,000. Your salary and savings can sit in this account, working to reduce interest while remaining fully accessible.
How a redraw facility works
A redraw facility allows you to make extra repayments on your loan and then "redraw" those extra funds later if needed. Unlike an offset account, redraw funds are part of the loan itself, not a separate account — you're essentially paying down your loan faster and then having the option to access that extra amount later, usually subject to the lender's terms and any minimum redraw amounts.
Key differences at a glance
| Feature | Offset account | Redraw facility |
|---|---|---|
| Structure | Separate linked transaction account | Extra repayments held within the loan |
| Accessibility | Usually immediate, like a regular account | May involve a request or processing time |
| Typical fees | May carry an annual account fee | Often free, though this varies by lender |
Which one is right for you?
If you want everyday access to your funds while still reducing interest, an offset account is often preferred. If you're comfortable with funds being tied more closely to the loan itself and want a simpler structure, redraw may suit better. Some loans offer both features together.
Because features, fees, and terms vary between lenders and loan products, it's worth comparing exactly how each lender structures their offset and redraw options before deciding what matters most for your situation.
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The information on this page is general in nature and doesn’t take into account your personal financial situation or objectives. It isn’t personal financial advice, and you should consider whether it’s appropriate for your circumstances before acting on it. Loan approval is always subject to the lender’s own credit assessment criteria.
