Australian Offset Account vs Redraw Calculator
Compare the interest savings, flexibility, tax implications, and strategies for offset accounts versus redraw facilities on your Australian home loan. AUD.
Both reduce the interest you pay, but they work differently and have different accessibility and tax profiles.
| Feature | Offset Account | Redraw Facility |
|---|---|---|
| How it works | Separate account offsets loan balance for interest | Extra repayments reduce loan balance |
| Interest calculation | Daily on (loan − offset balance) | Daily on reduced loan balance |
| Access to funds | Any time, like a bank account | May need application; 1-5 business days |
| Fees | Package fee ($300-$395/yr typically) | Often free; varies by lender |
| Salary deposit benefit | High — salary in offset earns full benefit | Lower — only extra repayments above minimum |
| Lender restrictions | Unrestricted (your money in a separate account) | Lender may restrict or suspend access |
| Available on fixed loans | Rarely | Sometimes (limited) |
| Tax deductibility | Preserves deductibility if converting to investment | May contaminate deductible debt if redrawn |
The optimal offset strategy: deposit your entire salary into the offset account, pay all bills on a credit card (with no interest if paid monthly), and pay the credit card balance in full from the offset at month end. This maximises the days your money sits in the offset.
- Salary deposited into offset account on pay day (Day 1)
- All monthly expenses paid on a credit card (not from offset directly)
- Credit card statement cut date: money still sits in offset
- Credit card payment due date (Day 30+): pay in full from offset
- Result: monthly spend earns 15-30 extra days in offset before leaving
- Bonus: credit card rewards or cashback on all spending
How to Use This Offset vs Redraw Calculator
Enter your loan balance, interest rate, remaining term, and the balance in your offset or available as redraw. Add your monthly salary deposit to model the benefit of cycling your pay through the offset account. The calculator shows the interest saving and time saved under each scenario.
Offset Account vs Redraw Facility — The Key Difference
Both strategies reduce the interest you pay on your home loan, but they work differently. An offset account is a separate bank account linked to your loan — the balance reduces your loan's effective interest daily, while remaining fully accessible like any bank account. A redraw facility consists of extra repayments you have made above your minimum — these reduce your loan balance directly, but accessing the funds may require an application and take days.
Which Is Better?
For the same constant balance, the interest saving is mathematically identical. The offset account wins when: (1) your balance fluctuates with salary deposits and expenses; (2) you may convert your home to an investment property; (3) you need instant access to funds; or (4) you receive Centrelink benefits as a homeowner. Redraw wins only in rare circumstances, primarily for some welfare situations.
Interest Saving Calculation
= Offset Balance × (Annual Rate ÷ 12)
Example: $50,000 offset, 6.25% rate
Monthly saving = $50,000 × (6.25% ÷ 12) = $260/month
Annual saving = $3,125
Salary Cycling Bonus (credit card strategy):
Extra days = Monthly spend × 15 days ÷ 365 × rate
Example: $4,000/month on card
Extra = $4,000 × (15/365) × 6.25% = $10/month bonus
Total Annual Saving over 30-yr loan: $93,000+ (offset advantage)
Example: Comparing Offset and Redraw
James and Priya: $600,000 Loan, $50,000 Savings
James and Priya have a $600,000 home loan at 6.25% (30 years) and $50,000 in savings. They are deciding whether to put it in an offset account or make extra redraw repayments.
| Monthly Repayment (base) | $3,693 |
| Interest Saving — Offset ($50K) | ~$260/month ($3,125/yr) |
| Interest Saving — Redraw ($50K) | ~$254/month ($3,048/yr) |
| Salary Cycling Bonus (offset) | +$50-$100/month extra |
| Offset — Total Interest Saved (life) | ~$95,000 |
| Redraw — Total Interest Saved (life) | ~$88,000 |
| Offset Access Speed | Instant |
| Redraw Access Speed | 1-5 business days |
If they convert their home to an investment in 5 years and move to a rental, the offset account preserves their loan's deductibility — potentially saving tens of thousands more in tax. The redraw would contaminate the deductible debt if they had previously redrawn for private purposes.