What is an offset account and what is redraw account?

There’s a lot of confusion in the marketplace about whether an offset or redraw account is useful.  In this blog, we unpack what each are and the differences between the two.

Offset

An offset account is a standard day to day transactional banking account.  It works the same way as your normal day to day banking account that you use to pay the bills.

Its unique, because it is linked to your loan.

This link means that the balance in the offset account is deducted from the loan balance when the bank charges you interest. As such, the funds held in that account are effectively offsetting the interest you would normally have to pay, hence the name.

An offset account is a separate account to your loan account.  It is ‘linked’ because it can reduce your interest bill, but other than that, has not interaction with your loan itself.  It works just like a normal day to day banking account.

An offset account is relatively unique loan feature to Australia, you won’t find many offset accounts in other parts of the world!

As a rule, we recommend having an offset account linked to any owner occupier debt you have.  For those who are good savers and have larger amounts of cash, the importance of this increases.  For those with little savings, the importance decreases as there’ll be limited usage of the offset.

Redraw

A redraw facility allows you to make extra repayments to your home loans that can then be withdrawn at a time of your choosing.  Unlike an offset, a redraw facility is not a separate account like an offset.  To have funds in the redraw account of your home loan, you will need to make additional repayments and pay down the loan.  Redraw facilities allow you to access these additional repayments as you choose to.