Offset vs redraw: how each works

Q: What is an offset account?

An offset is a separate everyday transaction account linked to your home loan. The balance is netted off the loan balance for the daily interest calculation. $20K in your offset against a $500K loan means interest is charged on $480K that day. Funds in an offset are legally yours: you can withdraw them at any time, no lender permission needed. They function exactly like a normal bank account: ATM access, BPAY, debit card.

Q: What is a redraw facility?

Redraw lets you take back any extra repayments you've made on the loan above the contracted minimum. If your monthly minimum is $2,500 and you pay $3,500, the extra $1,000 sits in redraw available to pull back later. Critically, the extra repayments have already gone to the lender: they're not your separate funds. Some lenders cap redraw transactions, charge a per-redraw fee, or freeze access during financial stress (this happened during COVID with several lenders).

Q: What's the tax difference between offset and redraw for investors?

If you might convert your home into an investment property in future, this matters a lot. Money in an offset stays a personal cash balance, withdrawing it doesn't change the loan structure or the tax-deductibility of interest on the original loan. Money in redraw is part of the loan. Pulling it out is treated as new borrowing. If you pull from redraw to fund a holiday, the interest on that portion is no longer deductible even after the property is rented out, because the borrowed funds weren't used for an income-producing purpose.

They look similar, both let you reduce interest by parking spare cash against the loan, but tax treatment, accessibility, and speed differ.

5 min read·Reviewed 28 October 2026·Ratesniffers Editorial Team

How do offset and redraw compare at a glance?

Offset and redraw both cut the interest you pay by parking spare cash against the loan balance, but they differ in three ways: whether the money stays legally yours, how quickly you can get it back, and whether pulling it out later can affect tax deductibility if the home becomes a rental.

Feature	Offset account	Redraw facility
What it is	A separate account linked to your loan	Extra repayments you can pull back
Is the money yours?	Yes, legally yours, withdraw anytime	No, already paid to the lender
Access	Instant: card, BPAY, ATM	Can be capped, charged, or frozen
Tax if it becomes an investment	Stays a personal balance, interest deductibility unaffected	Redrawing counts as new borrowing, can lose deductibility
Usual cost	Sometimes a small package fee	Often free
Best for	Flexible access, and anyone who might rent the home out later	Disciplined savers on a basic loan

What does having both actually cost right now?

Live figures from the same verified panel at 80% LVR, owner-occupier variable, as at 20 October 2026: products grouped by which of the two features they actually include. The cheapest verified product with both a full offset and redraw is Queensland Country Bank's Special Package Variable Owner Occupied <80% LVR P&I at 6.24% p.a., so getting both doesn't always mean paying the widest offset premium.

Feature combination	Products in panel	Average rate
Offset + redraw	22	6.68% p.a.
Redraw only (no offset)	18	6.40% p.a.

What is an offset account?

Funds in an offset are legally yours: you can withdraw them at any time, no lender permission needed. They function exactly like a normal bank account: ATM access, BPAY, debit card.

What is a redraw facility?

Critically, the extra repayments have already gone to the lender: they're not your separate funds. Some lenders cap redraw transactions, charge a per-redraw fee, or freeze access during financial stress (this happened during COVID with several lenders).

What's the tax difference between offset and redraw for investors?

Money in redraw is part of the loan. Pulling it out is treated as new borrowing. If you pull from redraw to fund a holiday, the interest on that portion is no longer deductible even after the property is rented out, because the borrowed funds weren't used for an income-producing purpose.

Rule of thumb: if there's any chance the home becomes an investment, choose offset over redraw, even if the loan with offset costs $10/month more in fees.

For every other feature beyond offset and redraw, fixed versus variable, splits, packages and honeymoon rates, see Ratesniffers' home loan features hub.

For a package loan built around multiple offset accounts, a scenario where the tax difference above matters most for investors, see AMP Bank's current rates.