These two features are often mentioned in the same breath, but they work differently, and the difference matters more than most borrowers realise.
How an offset account works
An offset account is a separate transaction account linked to your loan. The balance sitting in it 'offsets' against your loan balance for interest calculation purposes, without the money ever leaving your control — you can spend it like any everyday account.
How a redraw facility works
A redraw facility lets you access extra repayments you've already made on the loan itself. The money has technically gone into the loan, so accessing it is a withdrawal from the loan balance, which some lenders restrict, delay, or charge a fee for.
Why the difference matters for investment properties
For an investment loan, the tax treatment of interest can depend on how funds are accessed. Redrawing from an investment loan to fund a personal expense can affect the deductibility of interest on that loan, which is a conversation worth having with your accountant, not just your broker.
Chris Brown
Managing Director & Finance Broker at New Vision Financial Services, a credit representative under Australian Credit Licence 384704 and a member of the FBAA and AFCA. More about Chris →
Frequently asked
Which is better, offset or redraw?
Neither is universally better — it depends on how you want to access your money and, for investment properties, the tax treatment you're after. Discuss both with your broker and, for investment lending, your accountant.
Can a loan have both?
Some loans offer both features together, though not all do. If having both matters to you, confirm it's included in the specific product being recommended, not just the loan type generally.
Does an offset account cost extra?
Some lenders charge an annual fee for an offset account, often bundled into a package rate. Whether it's worth it depends on how much you typically keep in the account relative to the fee.