Offset accounts and redraw facilities both reduce the interest you pay on a home loan, but they operate differently day to day. An offset account is a separate transaction account whose balance is subtracted from your loan balance before interest is calculated. A redraw facility lets you pull back extra repayments you have already made on the loan. The choice affects how easily you can access your money, what fees you pay and whether the feature is worth the cost for your situation. Moneysmart explains the mechanics and the trade‑offs, and ASIC has warned that some offset accounts have not been linked correctly, costing borrowers thousands in lost savings.
How an offset account works
A mortgage offset account is a transaction account linked to your home loan, usually only available with a variable rate loan. The balance in the offset account reduces the amount of your loan that is charged interest each day. For example, if you owe $750,000 and hold $50,000 in the offset account, interest is calculated on $700,000. More of each repayment then goes toward principal, which can shorten the loan term and cut total interest.
Day to day, the account works like a regular transaction account. You can: - Have your salary paid into it - Pay bills and set up direct debits - Use a debit card for spending
Because interest on most home loans is calculated daily, every dollar left in the offset account for longer saves interest. Some borrowers use a credit card for everyday spending and repay it in full each month to keep more money in the offset account longer. Moneysmart notes this only works if you are certain you can clear the credit card each month, because credit card rates (over 18% as at May 2026) are far higher than home loan rates.
How a redraw facility works
A redraw facility is not a separate account. Extra repayments you make above the required minimum go straight onto the loan balance, reducing the principal and the interest charged. If you need that money later, you can ask the lender to redraw it. Access rules — how much you can withdraw, how often, any minimum amounts, fees and processing times — are set out in your loan contract and vary between lenders.
Key differences at a glance
| Aspect | Offset account | Redraw facility |
|---|---|---|
| Structure | Separate transaction account linked to the loan | Extra repayments sit on the loan itself |
| Daily access | Full — salary, bills, debit card, transfers | Limited — request to lender, may have minimums, delays or fees |
| Interest calculation | Balance offset daily against loan balance | Extra repayments reduce loan balance daily |
| Visibility | Separate account balance shown in banking app | Shows as available redraw within loan account |
| Typical loan type | Variable rate loans (some fixed with restrictions) | Variable and often fixed rate loans |
| Fees | May have monthly account fee, higher loan rate or package fee | May have redraw fees per transaction or annual fee |
| Discipline required | Low — money stays accessible | Higher — extra repayments are less liquid |
Both features can lower the interest you pay, but the offset account gives you transaction‑account flexibility while redraw keeps the money inside the loan.
When an offset account may be worth it
Moneysmart suggests an offset account may suit you if you: - Have a large loan balance - Keep a regular savings balance in the account - Want flexible, everyday access to those funds
It may not be worth it if you: - Usually hold a low offset balance - Face higher fees or a higher interest rate for an offset‑eligible loan - Could get a cheaper loan without the offset feature
The higher your loan and the larger your typical offset balance, the greater the potential savings. Compare the total cost of any extra fees or rate premium against the interest you realistically expect to save.
Costs to compare before you decide
Before choosing a loan with an offset account, check: - The interest rate — would it be lower without the offset feature? - Any annual or package fees for an offset‑eligible loan - Any monthly fees for the offset account itself - How the redraw facility on the same or a competing loan compares on fees, access rules and rate
Even small differences in interest rates and fees can add up over time, so compare your loan and features whenever your situation changes, according to Moneysmart.
ASIC warning: verify your offset is actually linked
ASIC's review found that some banks failed to properly link offset accounts to mortgages. If the link is broken, the money in the offset account is ignored when interest is calculated, but your repayments stay the same — so you silently pay more interest and take longer to repay the loan. In one example, a $750,000 loan with a $50,000 average offset balance at 6.25% p.a. cost over $3,000 extra interest in a single year when the offset was not linked; over the loan term the loss approached $230,000 and added four years to repayment.
Four checks to protect your savings
- Confirm the link in your banking app, online banking or statements — do not assume it is active just because you requested it at settlement.
- If you cannot see interest savings, ask your bank — request written confirmation that the offset is reducing your interest charge.
- Re‑check after any loan change — refinancing, switching products or varying the loan can break the link; you may need to ask the bank to re‑link it.
- Act quickly if something looks wrong — contact the bank immediately; unresolved errors cost more the longer they persist.
Next steps
- Pull your current loan documents and note the interest rate, any package or account fees, and the redraw terms (fees, minimums, processing time).
- Estimate your typical offset balance — review your recent savings and transaction account balances to see what you would realistically keep in an offset account.
- Run the numbers — use the Moneysmart mortgage calculator to model the interest savings from your estimated offset balance versus the extra fees or rate premium of an offset‑eligible loan.
- Compare redraw alternatives — check whether a loan with a competitive redraw facility and a lower rate or fewer fees would leave you ahead.
- If you already have an offset account, run the four verification checks above this month.
- When you are ready to compare loans side by side, you can explore current offers at /money/home-loans/.
This article provides general information only and does not constitute personal financial, tax, legal or credit advice. Fees, rates, features and eligibility criteria change frequently and vary between lenders. Always verify the current terms with the relevant lender and consider seeking advice from a qualified professional before making financial decisions.