Local guide: Australia / English. AUD examples only. Offset and redraw rules were checked against ASIC Moneysmart and ATO pages on 1 October 2026.
Should your home loan come with an offset account, or is a cheaper redraw-only loan enough? You need your loan balance, the spare cash you really keep, both interest rates, the yearly offset or package fee and your tax rate. The answer below covers money only; it cannot price how much you value easy access to your cash.
In short, the same spare cash saves almost the same interest in an offset or in redraw. The difference is what the offset costs you each year in fees and any higher rate, and whether the home could later become a rental, where an offset keeps interest deductions that redraw can lose.
Offset or redraw: what does each set-up cost you in a year?
Enter your loan, the spare cash you keep, both loan rates and the offset fee. See the yearly interest and fees for an offset loan, a redraw-only loan and a basic loan with the cash in a savings account.
One-year view on average balances. It ignores principal paid off during the year, daily interest timing and package discounts. The deduction value only applies if the home later becomes an investment property and the spare cash is then used for something private, such as your next home.
This tool runs in your browser. Your entries are not sent or saved. All amounts are in Australian dollars (AUD).
Load example fills hypothetical figures. They are not current rates or recommendations.
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What is the difference between an offset account and a redraw facility?
ASIC's Moneysmart describes an offset account as a transaction account linked to your home loan. The balance reduces the amount of the loan that is charged interest, and the money stays yours: you can have your pay deposited, pay bills and use a debit card.
A redraw facility works differently. Extra repayments go straight onto the loan, and you may be able to withdraw them later. Moneysmart notes that how and when you can access that money depends on your loan terms, so check the contract rather than assuming redraw works like a bank account.
The ATO's ruling TR 2000/2 gives the legal view. Repayments above the minimum reduce the outstanding debt, and money redrawn increases it again. It also notes that a redraw can need the lender's consent and may come with limits on how much and how often you can redraw.
Why do offset and redraw save similar interest on the same cash?
Both set-ups stop you paying interest on the spare cash. With redraw, the cash has already cut the loan balance. With an offset, the lender subtracts the offset balance from the loan before working out interest. Moneysmart's example is a $750,000 loan with $50,000 in offset, charged interest on $700,000.
So on the same rate, $40,000 of spare cash saves $40,000 × 5.80% = $2,320 a year either way. The money difference comes from the price of the offset feature: a yearly package or account fee, a slightly higher interest rate on the whole loan, or both. Moneysmart says to compare that cost with the interest you expect to save.
Savings in an offset or redraw are not paid to you as interest, so there is no tax on them. Interest from a savings account is different: the ATO says interest from a bank or other financial institution is part of your assessable income. That is why the calculator asks for your tax rate.
What does an offset actually cost you each year?
Take a hypothetical $600,000 loan and $40,000 of spare cash kept as an average balance. The redraw-only loan charges 5.80%. The offset version charges 5.90% plus a $395 yearly package fee. The savings account pays 4.50%, and the borrower's marginal tax rate including Medicare levy is 32%.
- Redraw-only loan: ($600,000 − $40,000) × 5.80% = $560,000 × 5.80% = $32,480.00 of interest.
- Loan with an offset: $560,000 × 5.90% = $33,040.00, plus the $395 fee = $33,435.00.
- Extra yearly cost of the offset: $33,435.00 − $32,480.00 = $955.00.
- Basic loan with the cash in savings: $600,000 × 5.80% = $34,800.00, less after-tax savings interest of $40,000 × 4.50% × 0.68 = $1,224.00, a net $33,576.00.
On money alone, the redraw-only loan is cheapest here. The offset costs $955.00 more each year, and keeping the cash in a separate savings account costs $1,096.00 more than redraw ($33,576.00 − $32,480.00). Check whether the gap is worth the access you get.
| Set-up | Loan interest | Fee | Savings interest after tax | Net yearly cost |
|---|---|---|---|---|
| Redraw-only loan at 5.80% | $32,480.00 | $0.00 | $0.00 | $32,480.00 |
| Loan with an offset at 5.90% | $33,040.00 | $395.00 | $0.00 | $33,435.00 |
| Basic loan at 5.80% plus savings at 4.50% | $34,800.00 | $0.00 | $1,224.00 | $33,576.00 |
Change one input and the order can flip. If the offset loan had the same 5.80% rate and no fee, its cost would equal the redraw loan's $32,480.00, and you would keep everyday access to the cash at no extra price.
When is a savings account better than either?
Only when the savings rate beats your loan rate after tax. The break-even savings rate is the loan rate ÷ (1 − your marginal tax rate). At a 5.80% loan rate and a 32% tax rate, that is 5.80 ÷ 0.68 = 8.53%, well above the 4.50% savings rate in this example.
| Marginal tax rate | Break-even savings rate before tax |
|---|---|
| 0% | 5.80% |
| 17% | 6.99% |
| 32% | 8.53% |
| 39% | 9.51% |
| 47% | 10.94% |
A separate savings account can still make sense for a small emergency buffer you never want tied to the lender. Just know the price: in the example above it costs about $1,096 a year compared with redraw.
Why does it matter if the home might become a rental later?
TR 2000/2 says the deductibility of interest on redrawn money depends on what the redrawn funds are used for. Where the original borrowing is for income-producing purposes and you redraw for private use, the interest on that redrawn part is not deductible, and the loan becomes a mixed-purpose loan.
That is the trap if you might rent out your current home and buy a new one. Cash parked in redraw has already paid the loan down; taking it out later for your next home counts as a new private borrowing. Money in an offset never reduced the loan itself, so the full loan can stay linked to the rental.
In the example, the deduction an offset keeps is about $40,000 × 5.80% × 32% = $742.40 a year once the home is a rental. Set against the $955.00 extra cost, the offset still costs $212.60 more a year on these numbers. With a no-fee offset at the same rate, it would come out ahead.
This is general information about how the ruling works, not tax advice. Confirm how it applies to your loans with the ATO or a registered tax agent before you move money between redraw and offset.
Is your offset actually working?
Moneysmart warns that an ASIC review found some banks had not properly linked offset accounts to mortgages, so customers paid more interest without noticing. Repayments stay the same, so the error is easy to miss.
Check your statements or banking app for the offset benefit, and contact your bank if you cannot see it. There is no point paying a package fee for an offset that is not reducing your interest.
When does this comparison not fit?
- Fixed-rate loans: a fixed loan may have no full offset or may cap extra repayments, so read your loan terms first.
- Partial offset accounts: if only part of the balance counts, multiply your cash by that share before using the calculator.
- Package fees that also cover other products: if the fee includes a credit card or rate discount, the fee is not purely an offset cost.
- Investment loans you already hold: the deduction question is different, and a tax agent should look at your loan history.
- Large swings in your balance: the tool uses one average balance for the year, so test a lower figure.
How the calculator works and what it leaves out
Redraw-only interest is (loan − spare cash) × the redraw loan rate. Offset interest is (loan − spare cash) × the offset loan rate, plus the yearly fee. The savings option charges the full loan at the redraw rate and subtracts savings interest × (1 − your tax rate).
The deduction value is spare cash × the redraw loan rate × your tax rate, counted only if you say the home could become a rental. Each line is rounded to the cent before differences are taken.
It is a one-year view on average balances. It ignores principal repaid during the year, daily interest timing, redraw fees or limits, and any changes in rates. It does not tell you whether a lender will approve a loan.
If you are also weighing a lump sum against other debts, see whether to pay off a HECS debt early. For the rest of your fixed costs, the household budget review for Australia lists bills to check at renewal time.
Quick decision checklist
- Use the average balance you really keep, not the peak after payday.
- Get both rates and the yearly offset or package fee in writing from the lender.
- Check whether the offset is full or partial, and what limits apply to redraw.
- If the home could become a rental, keep spare cash in an offset rather than redraw and ask a tax agent first.
- After settlement, confirm the offset is linked by checking your interest on a statement.
Sources, scope and editorial note
- ASIC Moneysmart: Mortgage offset accounts. Used for: how an offset reduces the loan charged interest, offset vs redraw access, comparing fees with interest saved, and the ASIC review of unlinked offsets.
- ATO: TR 2000/2, deductibility of interest on line of credit and redraw facilities. Used for: redraw repayments reducing the debt, lender consent and limits, and deductibility depending on the use of redrawn funds.
- ATO: Investing in bank accounts and income bonds. Used for: bank interest as assessable income.
Sources checked 1 October 2026. All rates, fees and dollar figures are hypothetical examples in AUD, not lender quotes. This guide was prepared with AI assistance and source checking; it has not received professional financial or legal review. It is educational, not tax, credit or investment advice.
