Offset or redraw: where should the extra money sit?
An offset keeps cash in a separate linked account. Redraw gives access, under the loan’s rules, to eligible extra repayments already paid into the loan. Both can reduce interest, but access and costs may differ. Start with when you will need the money, then compare the actual loan rate, fees and withdrawal conditions. A similar interest result does not make the arrangements interchangeable for every household.
By Ratey · General information for Australian borrowers.
Example: decide using the next known withdrawal
Imagine $25,000 set aside, with a $12,000 roof repair expected in six weeks. First confirm how the payment would be made under each product. Then compare interest and fees for the six weeks before the repair and the lower balance afterwards.
Entering $25,000 as the permanent offset balance would exaggerate the likely saving. Equally, paying the whole amount into the loan before confirming redraw access could create an avoidable cash-flow problem. The useful output is an access plan plus a cost comparison.
Follow where the money goes
For an offset, show savings as cash and the mortgage as debt. For an extra repayment, subtract the payment from debt and cash. Available redraw is a facility attached to the loan, so check its conditions before treating the displayed amount as spending money.
Moneysmart distinguishes separate offset savings from extra loan repayments that may be redrawn. ANZ’s redraw explanation also notes that redrawing increases the loan balance. Those mechanics matter when you make a withdrawal, even where an initial interest illustration looks identical.
Compare the same dollars on the same day
Use a hypothetical $400,000 mortgage and $30,000 of spare cash. With a 100% offset, debt remains $400,000 and the interest-bearing amount is $370,000. With an extra $30,000 repayment, debt becomes $370,000. At an identical rate, before fees and timing differences, those starting interest amounts match.
If $10,000 is then spent from the offset, the interest-bearing amount rises to $380,000. If $10,000 is instead redrawn and spent, the debt rises to $380,000. This example compares mechanics only: it assumes the redraw is permitted and the loan rate is identical.
| Position | Offset route | Extra repayment route |
|---|---|---|
| Debt after placing $30,000 | $400,000 | $370,000 |
| Separate cash | $30,000 | $0 |
| Initial interest-bearing amount | $370,000 | $370,000 |
| After permitted $10,000 withdrawal | $380,000 interest-bearing | $380,000 debt |
Test the access rules against a real expense
Choose an expense you might actually face: a $2,000 urgent repair, a $15,000 car replacement or a series of renovation invoices. Ask how you would access that amount, what steps are required and whether a limit, fee or processing delay applies.
For redraw, ask whether available funds change as the scheduled balance reduces and what happens when the loan approaches its end. For offset, check transfer limits, account ownership and whether the account links to your exact loan product. An account feature that works for monthly bills may need a different process for a large one-off payment.
Compare the price of keeping access
Write down the annual fees and interest rate for each actual option. For illustration, a 0.10 percentage-point premium on $400,000 is $400 a year with a constant balance, before allowing for offset savings or other fees. The product price can change a decision that looked equal in the earlier example.
Also write down how much cash you want available and why. That makes the trade-off explicit rather than assuming maximum accessibility is always worth any price. If tax treatment could matter because the home may become an investment property, get advice before transferring or redrawing money; the simple balance comparison here does not determine deductibility.
Your next-step checklist
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Common questions
Does redraw earn savings-account interest?
It represents eligible extra loan repayments available to withdraw under the product rules. Its interest benefit comes through the loan balance, rather than ordinary savings-account interest.
Is offset always more expensive?
No. Compare actual offers. The example of a premium is hypothetical and does not describe every lender or loan.
Can I use both?
Some products allow both features. Ask how extra repayments, redraw availability and offset balances interact on your particular loan.
Sources and assumptions
These primary sources support the explanations above. Examples use invented figures to show the calculation or decision; they are not available loan offers. Check your lender’s terms for your circumstances.
Calculations are estimates and do not establish borrowing eligibility. Read the calculation methodology.
Put a price on the offset option
Compare the extra rate and fees with the balance you expect to retain.