Offset vs redraw: what is the difference?
Both reduce interest. Only one keeps your money truly yours.
Short answer
An offset account is a transaction account linked to your loan. Every dollar in it reduces the balance you are charged interest on. Redraw lets you take back extra repayments you have made.
Why the difference matters
- Offset funds are your savings; redraw funds are part of the loan
- Lenders can restrict or limit redraw
- For investors, money taken from redraw can affect tax deductibility
Which is better?
For most owner occupiers who might turn their home into an investment later, an offset gives more flexibility. Speak to your accountant on tax.