Offset vs redraw: which actually saves you more?

If you've got a bit of spare cash sitting against your home loan, two features can put it to work: an offset account and redraw. They can save you the same interest, but they work differently and suit different people. Here's the plain-English difference.

How each one works

An offset account is an everyday transaction account linked to your home loan. Whatever sits in it is offset against your loan balance, so you're only charged interest on the difference. Park $20,000 in an offset against a $500,000 loan and you pay interest as if you owed $480,000.

Redraw is different. When you pay extra onto your loan, those additional payments reduce your balance — and many loans let you redraw that money later if you need it. The interest saving is the same; what changes is how you get to the money.

Dollar for dollar, the saving is the same

This surprises people: $20,000 in an offset and $20,000 paid extra onto your loan save you exactly the same interest. So the choice isn't really about saving more — it's about access, flexibility and discipline.

So what's the real difference?

• Access. Offset money sits in an everyday account — spend or withdraw it anytime. Redraw usually takes a request, and some lenders limit how often you can redraw or charge a small fee.
• Temptation. Because redraw money is paid down, it can feel less available — which helps if you'd rather not dip into it. An offset keeps it visible and on tap.
• Cost. Offset accounts sometimes come with a higher rate or an annual package fee; redraw is often free. Weigh the fee against the benefit.
• Tax. For investment loans, redrawing can affect what's tax-deductible. If the property is an investment, get tax advice before you redraw.

Which suits you?

If you want everyday access and an emergency buffer, an offset often wins. If you'd rather keep things simple and avoid the temptation to spend, extra repayments with redraw can be ideal. Plenty of people use a bit of both — the right mix depends on how you manage money and how your loan is structured.

See it on your own loan

Our offset vs extra repayments calculator lets you compare the two side by side and see the interest and time you could save.

Not sure how to structure your loan? Have a chat with us — we'll help you set it up to suit how you actually live.