Should you choose an offset account or redraw facility?

Choosing between an offset account and a redraw facility sounds simple enough on paper. Both reduce the interest you pay. Both let you use spare money to chip away at your loan. And both appear, in one way or another, inside your banking app. Yet the way these two features behave in real life – how flexible they are, how they interact with your spending habits, and how they affect your tax position – can vary dramatically from one borrower to another.

A redraw facility might be perfect for someone who will never rent out their home, but costly for anyone who might turn their first property into an investment. Offset accounts are ideal for borrowers who want flexibility and easy access to savings. Redraw facilities, on the other hand, work better for those who prefer a structured approach and don’t need to dip into extra repayments regularly.

The best choice depends entirely on how you live, how you earn, and what you plan to do with the property in the years ahead. The following six case studies show how different borrowers – with different goals, incomes, and behaviours – end up choosing one option over the other.

Case Study 1: The Disciplined Saver

Profile:

• Couple in their mid-40s
• Stable salaries, low variation month to month
• Aggressively repaying the loan
• Rarely withdraw savings once deposited

Behaviour:
They consistently pay $300–$500 above their minimum monthly repayment and never touch the surplus. Their goal is simply to pay down the loan as fast as possible.

Best option: Redraw
Why:
A basic loan with redraw has lower fees than an offset package. Because they rarely need to access extra money, redraw’s discipline helps them stay on track and saves them from paying annual offset fees unnecessarily.

Case Study 2: The Cash-Flow Juggler (Freelancer)

Profile:

• Self-employed designer
• Income varies weekly
• Needs to store money for BAS, tax, life expenses
• Surplus fluctuates constantly

Behaviour:
Money must flow in and out of an account easily. She receives irregular payments, sometimes large lumps, sometimes nothing for weeks.

Best option: Offset
Why:
She needs full, immediate access without delays. Offset functions like a normal transaction account while still reducing interest.

Case Study 3: The Future Investor

Profile:

• Young couple in their early 30s
• Plan to upgrade in 5–7 years
• Intend to keep their current property as a rental

Behaviour:
They save aggressively and may occasionally use savings for travel or home upgrades.

Best option: Offset (by a long margin)
Why:
If they funnel extra repayments into redraw, withdrawing those funds later (for a holiday or new furniture) creates a mixed-purpose loan. When the home becomes an investment, part of the loan will be non-deductible, costing thousands in lost deductions. Offset avoids this entirely.

Case Study 4: The Family Builder (Renovators)

Profile:

• Family with two kids
• Planning a major renovation in two years
• Currently saving as much as possible

Behaviour:
They want to stockpile $50,000–$100,000 for renovations, then spend it in chunks over several months.

Best option: Offset
Why:
Offset lets them pile savings into the account and later spend it directly on renovation costs without altering the loan’s structure. Using redraw would treat each withdrawal as a new loan for renovations – fine now, but disastrous if they ever rent the home out later. Offset keeps the loan clean.

Case Study 5: The Budget-Conscious Borrower

Profile:

• Single person in their late 20s
• Minimal spare cash
• Tight monthly budget
• Rarely holds more than $3,000–$5,000 in savings

Behaviour:
Their goal is to keep loan costs low and avoid unnecessary fees. Savings balances are small.

Best option: Redraw
Why:
Offset accounts usually come with annual fees or slightly higher interest rates. With low savings, the offset benefit wouldn’t outweigh the cost. Redraw gives similar interest reduction when they do make extra payments, without the price tag.

Case Study 6: The High-Income Planner (Future Tax Strategy)

Profile:

• Professional earning a high salary
• Has large cash reserves: $80,000–$150,000
• Wants flexibility and clean tax planning
• Considering buying investment properties in future

Behaviour:
Keeps large sums in savings, often shifting money between accounts to manage tax, investments, and lifestyle.

Best option: Offset
Why:
The savings balance is large enough to make an offset hugely valuable. It reduces interest dramatically and avoids the tax complications of redraw. A redraw facility would collapse that entire savings buffer into the loan, and any future withdrawal could taint deductibility. Offset preserves both flexibility and tax certainty.