Offset accounts vs redraw facilities
They look similar — both let you reduce interest by parking spare cash against the loan — but tax treatment, accessibility, and speed differ.
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.
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).
Tax difference 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.
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.
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