Is it Better to Have an Offset Account vs Redraw Facility? Comparing Mortgage Features

Choosing the right mortgage features can make a significant difference to how much interest you pay and how flexibly you can manage your funds. In Australia, two of the most popular interest-saving tools are the offset account and the redraw facility. Although many loans offer both, each feature works in a distinct way and suits different cash-flow habits.

What Is an Offset Account?

An offset account is a transaction account linked to your home loan. Every dollar you hold in the offset account is “offset” against your mortgage balance when daily interest is calculated.

For example, if you have $10 000 in your offset account (for the calendar month), and $300 000 remaining on your home loan. The interest charged (that month) will be on the balance of $290 000 (your loan - your offset balance).

These accounts function as a normal account, you can transfer money in and out and even have a debit card. However they may require a minimum balance or charge a monthly fee. Some lenders may have a limit on how many offset accounts you can have.

What Is a Redraw Facility?

This isn’t a separate account, but rather a function of the loan itself. A redraw facility allows you to withdraw any extra repayments you’ve made on your mortgage. Only the amount above your required minimum repayment sits in a redraw “pool” and can be accessed if needed.

For example, if you have made $1000 in extra repayments to your loan, that $1000 reduces your interest bearing balance. When you need some extra cash, you can redraw that $1000.

Often loans will have a minimum redraw amount, and a maximum number of free redraws per year. It may also take a few business days to process and sometimes incur a per-transaction fee.

Feature	Offset Account	Redraw Facility
Interest savings	Immediate on day-to-day balance	Only on lump-sum extra repayments
Access to funds	Instant via card, BPAY, EFTPOS	May have withdrawal delays or limits
Fees	Account-keeping fees; minimum balance requirements	Per-redraw fees; minimum redraw amounts
Account setup	Separate transaction account (or main transaction account for your new home loan)	Built into your home-loan account
Ideal for	Regularly dipping into savings	Infrequent, planned redraws

Do Loans Offer One, the Other or Both?

Most lenders offer:

Offset-only loans for clients who maintain sizable everyday savings.

Redraw-only loans (some offer this on fixed loans also).

Combined packages letting you use both an offset account and a redraw facility.

Even if you have both, comparing their mechanics and costs is crucial. Your choice will depend on whether you prefer instant liquidity (offset) or simply want to bank extra repayments for occasional access (redraw).

Which one is better for me?

It’s important to properly assess your cashflow habits to make the best decision. Do you prefer to set aside lump sum repayments? Or do you regularly dip into savings? Always review all account charges, minimum balance requirements and other fees to help choose.

Choose an offset account if:

You keep a healthy savings buffer and want maximum day-to-day interest relief.

You need instant access to those funds without redraw fees or processing delays.

Choose a redraw facility if:

You make regular extra repayments but only need to access them rarely.

You’d rather avoid paying ongoing account fees for a separate transaction account.

If you can’t decide, a combined loan gives you both options—use your offset account for everyday balances and the redraw pool for larger, less-frequent withdrawals.

Ready to Compare Home-Loan Features?

At Ideal Financial Group, we specialise in structuring mortgages with the features that best suit your lifestyle and financial goals. Whether you need an offset account, a redraw facility, or both, we can help you compare products and secure competitive terms.

Contact us today to discuss which mortgage features are right for you.

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