Offset vs Redraw: Which Is Better for Your Wealth Strategy?

Understanding the Basics

When managing your home loan, two common features you’ll encounter are offset accounts and redraw facilities. While they both help reduce interest, they work in different ways and choosing the right one can impact your broader financial strategy.

What Is an Offset Account?

An offset account is a transaction account linked to your mortgage. The balance in this account “offsets” your loan principal, reducing the interest charged.

Example: If your loan is $500,000 and your offset account has $50,000, you’ll only be charged interest on $450,000.

What Is a Redraw Facility?

A redraw facility allows you to make extra repayments on your mortgage and then “redraw” those funds later if needed. It’s a way to reduce interest while still having access to your money.

Key Differences: Offset vs Redraw

Which Option Suits Your Wealth Strategy?

For High-Income Professionals

Offset accounts offer greater flexibility and are ideal for those with fluctuating cash flow or large savings balances. They also integrate well with investment strategies (see: How to Build a Diversified Investment Portfolio).

For Business Owners

Redraw facilities can be useful for disciplined savers who want to reduce interest but don’t need frequent access to funds. However, they may not be ideal for business-related cash flow (see: Financial Planning for Small Business Owners).

For Self-Funded Retirees

Offset accounts can help retirees manage their income streams while keeping funds accessible. This is especially useful when paired with retirement planning strategies (see: Choosing the Right Retirement Plan).

Tax Considerations

Using redraw funds for investment purposes can complicate tax deductibility. Offset accounts, on the other hand, keep your loan balance intact, which may be more tax-efficient (see: Family Trusts in Australia).

Final Thoughts

There’s no one-size-fits-all answer. The right choice depends on your financial goals, lifestyle, and how you manage your money. A financial adviser can help you integrate these tools into a broader wealth strategy.

Need Help Choosing the Right Option?

Contact us to discuss how offset and redraw strategies can support your long-term financial goals.