Both an offset account and a redraw facility can reduce the interest you pay over the life of your loan, and both let you access money you’ve put in. They work differently, though, and suit different habits.
How an offset account works
An offset account is a separate transaction account linked to your home loan. The balance sitting in it is “offset” against your loan balance when the lender calculates your daily interest, so if you owe $400,000 and have $20,000 sitting in your offset account, you only pay interest on $380,000.
Money in an offset account stays fully accessible, you can withdraw it, spend it, or use it exactly like a regular transaction account, without needing to formally apply to access it.
How a redraw facility works
A redraw facility lets you make extra repayments onto your loan beyond the minimum required, then draw those extra funds back out later if you need them. Making extra repayments reduces your loan balance directly, which reduces the interest charged, similar in effect to an offset account, but the money isn’t sitting in a separate account you can spend from day to day.
Accessing redraw funds usually requires a specific request to the lender, through internet banking or by contacting them directly, and some lenders cap how much you can redraw at once, or charge a small fee per redraw.
Key differences
| Offset account | Redraw facility | |
|---|---|---|
| Access to funds | Immediate, like a transaction account | Requires a redraw request |
| Fees | Often bundled into a package fee | May have per-redraw fees or limits |
| Best for | Money you want to keep liquid but still working against your loan | Extra repayments you’re less likely to need back quickly |
| Common loan types | More common on variable and packaged loans | Available on many variable loans, less common on fixed loans |
Which one suits you
An offset account tends to suit people who keep a meaningful working balance in their transaction account day to day, salary, savings buffer, upcoming bills, since that balance works for you automatically without any extra effort.
A redraw facility tends to suit people who want to get ahead on their loan through deliberate extra repayments, but want the option to pull that money back if a genuine need comes up, without needing a dedicated offset account attached.
Some borrowers use both, keeping a working buffer in an offset account while occasionally making lump-sum extra repayments they’re comfortable leaving in redraw for longer.
A caution on fixed-rate loans
Fixed-rate loans often limit or exclude offset accounts and redraw facilities, or cap how much extra you can repay each year before break costs apply. If either feature matters to you, check this specifically before choosing a fixed rate.
The cost side
Both features are usually offered on standard or packaged loans, which may carry a monthly or annual fee that a basic, no-frills loan doesn’t. If you won’t actually use the offset balance or make extra repayments, that fee is a straightforward cost with no offsetting benefit, worth factoring in when you compare loans in our how to compare home loans guide.