Two borrowers both have $40,000 sitting against a $600,000 loan at 6.3 per cent. Both are saving roughly the same interest. One can pull that $40,000 out on a Saturday morning to cover a job loss, a hospital bill, or a deposit on the next property. The other rings the bank and is told the available redraw has been reduced, frozen pending a review, or is now subject to a hardship assessment. That is the gap between a genuine 100 per cent offset account and a redraw facility, and the home-loan ad that put both products in the same sentence never explained it.
The confusion is deliberate enough that it is worth being blunt. CBA, Westpac, NAB and ANZ all advertise "offset" prominently, but plenty of cheaper products marketed as having an offset feature are running a redraw underneath, or an offset that only nets against part of your loan. When the rate is the same on the brochure, the difference in what you actually control is the whole game.
Offset and redraw are not the same product
A genuine 100 per cent offset is a transaction account linked to your loan. The balance in it is netted against your loan balance for the daily interest calculation, but legally the money is still yours, sitting in your account. You withdraw it the same way you withdraw from any savings account, no permission required, and the lender cannot reach into it. Redraw is the opposite arrangement. When you make extra repayments above your minimum, that money pays down the loan, and redraw is the lender letting you borrow some of it back. Because it has legally been repaid against the loan, the lender sets the terms on getting it back, and those terms can change. Banks have, in past stress periods, reduced the available redraw limit, frozen redraw on individual accounts, imposed daily withdrawal caps, and folded redraw balances into hardship reviews when a borrower fell behind. ANZ and others publicly tightened redraw access during the 2020 stress window. None of that is theoretical, and none of it requires your consent.
- Offset: your savings sit in your transaction account, netted against loan interest, withdraw any time, the lender cannot restrict access.
- Redraw: extra repayments already paid against the loan, available back at the lender's discretion, which can be reduced, frozen, capped, or pulled into a hardship review.
- On a split loan, an offset often nets only against the variable portion, not the fixed portion, so $40,000 of offset against a mostly-fixed loan saves far less than you expect.
What the offset actually saves you
Run the numbers on the example. $40,000 held in a genuine offset against a $600,000 loan at 6.3 per cent reduces the balance interest is charged on to $560,000. That is roughly $2,520 a year in interest you do not pay, and because it is interest saved rather than income earned, there is no tax on it. Against a savings account paying 4.5 per cent before tax, the offset wins comfortably for anyone on a marginal rate above 19 per cent. So far the offset looks like a clear yes.
Then comes the part the ad skips. Most "professional package" home loans bundle the offset behind a $395 annual package fee. On a $40,000 balance that fee eats about 16 per cent of the $2,520 benefit, leaving roughly $2,125. Tolerable. But the package fee is fixed regardless of your offset balance, so the maths inverts on small balances. Hold $6,000 in offset and you save about $378 in interest while paying $395 for the privilege. You are paying the bank for the feature. Some lenders also cap the number of offset sub-accounts, or charge the package fee per account, so a couple running three offsets is not always better off.
When redraw is fine, and when offset is worth paying for
Redraw is perfectly good for a disciplined saver with no liquidity worry. If your emergency buffer lives elsewhere, you are not relying on the loan as your rainy-day fund, and you would rather a no-frills basic variable with no package fee, redraw does the same interest job for free. The risk you accept is access. As long as you never need that money in a hurry or in a downturn, redraw and offset are economically identical and the offset premium is wasted. Offset earns its keep in two situations. First, when the money is your emergency buffer and you need certainty you can reach it, an offset gives you withdrawal control a redraw cannot promise. Second, and this is the one borrowers miss, when you may turn the home into an investment property later. If you park spare cash in offset rather than paying down the loan, your loan balance stays high, so when the property becomes a rental the interest on that high balance is deductible. Pay the loan down via extra repayments and redraw the cash for personal use later, and the ATO treats the redrawn portion as new borrowing for a private purpose, which is not deductible. Offset preserves deductible debt; redraw can quietly destroy it.
So here is what to do. First, confirm whether your offset is a genuine 100 per cent offset account in your own name or a redraw facility dressed up in the marketing. Read the contract, not the homepage, and ask the lender to put the answer in writing. Second, do the fee maths on your real balance: multiply your typical offset balance by 6.3 per cent, and if the interest saved does not clear the $395 package fee with room to spare, a basic variable with free redraw is the better product. Disciplined saver with a buffer elsewhere, take the cheaper loan. Emergency-fund holder or future landlord, pay for the real offset and use it properly.
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