What is the difference between an offset account and redraw?

An offset account is a separate everyday transaction account linked to your home loan; its balance is 'offset' against your loan balance to reduce the interest you pay. Redraw is a feature of the loan itself that lets you withdraw extra repayments you've already made. Both reduce interest, but an offset account gives you instant, everyday access to your money, while redraw access can be slower and is sometimes restricted by the lender.

Is an offset account or redraw better for tax?

For investors, an offset account is usually better. Money in an offset account isn't a loan repayment, so withdrawing it doesn't change the deductible portion of your loan. Redrawing funds, however, is treated as new borrowing — if you redraw for personal use, that portion of interest may no longer be tax-deductible. Always confirm with your accountant.

Does redraw or offset save more interest?

Dollar for dollar they save the same interest, because both reduce the balance your interest is calculated on. The difference is flexibility, access, fees and tax treatment — not the raw interest saving.

Do offset accounts cost more?

Often, yes. Loans with a full offset account may carry a higher rate or an annual package fee, while redraw is frequently free. Whether the offset is worth it depends on how much you'll keep in the account and how you value instant access.

Can I have both offset and redraw?

Yes — many loans offer both. A common approach is keeping your savings and salary in the offset account for daily access, while extra lump-sum repayments sit in redraw.

Offset vs Redraw: Which Saves You More?

Offset accounts and redraw facilities both cut the interest you pay on your home loan — but they work differently when it comes to access, cost and tax. Here's how to choose the right one for you.

How an offset account works

An offset account is a regular transaction account linked to your loan. If you owe $500,000 and hold $30,000 in your offset, you're only charged interest on $470,000. Your money stays fully accessible for everyday spending, and it keeps working for you every day it sits there.

How redraw works

Redraw lets you pay extra into your loan and pull those additional repayments back out later if you need them. Like an offset, the extra balance reduces the interest you're charged — but access can be slower, may have limits or fees, and the funds live inside the loan rather than in a separate account.

The key differences

Access — offset gives instant everyday access; redraw access can be slower or restricted.
Cost — offset loans often carry a higher rate or package fee; redraw is usually free.
Tax — for investors, offset preserves deductibility; redrawing for personal use can reduce it.
Discipline — money in redraw feels 'paid off', which can help you avoid spending it.

Which should you choose?

If you keep a healthy balance in savings and want everyday flexibility — or you're an investor — an offset account usually wins. If you want a simple, low-cost way to get ahead and won't touch the money often, redraw can be the smarter pick. See the impact for yourself with our offset calculator.

This guide is general information only and not financial advice. Tax treatment depends on your circumstances — confirm with your accountant. Speak to a XLOANS broker for advice tailored to you.

Offset vs redraw: which saves you more?

How an offset account works

How redraw works

The key differences

Which should you choose?

Frequently asked questions

Not sure which feature suits you?