Offset Account vs Redraw: The Same Saving, Unless Your Offset Is Not Linked

This article sets out offset account vs redraw: how each reduces the interest charged on a home loan, where the two differ in access, cost and tax, and what the Australian Securities and Investments Commission (ASIC) reported in July 2026 about offset accounts that did not work as promised. It is general information only and does not recommend either feature. The lender’s own documents are the authority on the terms of any loan, and the sources named at the foot of the article are the authority on the figures. This article is general information and does not take account of your objectives, financial situation or needs.

The central point may be stated at the outset. On the same dollars, and ignoring fees and access, an offset account and extra repayments reduce interest by the same amount. What differs is access to the money, the cost of the feature and, for a loan secured on a rental property, the tax treatment of the interest. A further point applies to whichever feature a borrower holds. ASIC Report 837 (REP 837), “Offsets, out of mind: Banks fall short on mortgage offset account promises”, published on 29 July 2026, found gaps in the setting up, linking and managing of offset accounts at all eight banks reviewed. An offset account that is not linked to the loan saves nothing, while the repayments continue to look normal.

How each feature reduces the interest a borrower pays

The two features reduce interest by the same mechanism, which is a lower balance on which interest is charged. The descriptions below follow Moneysmart and ASIC.

1. Offset account. Moneysmart states that the balance in the offset account reduces the amount of the loan that is charged interest. The account is a transaction account linked to an eligible home loan. The required repayment does not change, but because less interest is charged, a greater share of each payment goes to principal (ASIC REP 837, July 2026, Appendix 1).
2. Redraw facility. Moneysmart describes redraw as access to any extra money that has been paid into the home loan. Extra repayments lower the loan balance, and the borrower may later withdraw them through the redraw facility. Moneysmart records that some lenders limit how much can be redrawn or charge a fee, and that others may delay access (Moneysmart, updated 9 September 2026).
3. The shared effect. Each feature works by reducing the balance on which interest is charged, and the size of the effect depends on the amount held against the loan and the length of time it is held there. This is a reading of the descriptions above. It is not a statement of any lender’s terms, which differ.

A worked example, labelled hypothetical

The example below is hypothetical. It uses the inputs that ASIC itself uses in its illustration in REP 837 (Appendix 1, page 16): a loan of $750,000, an interest rate of 6.25 per cent a year and an average balance of $50,000. The rate is an input to the arithmetic. It is not a current rate and it is not a prediction.

Hypothetical, simple annual arithmetic, ignores daily calculation and repayments; the loan, rate and balance are the inputs ASIC uses in its own example (ASIC REP 837, July 2026, Appendix 1, page 16).

Three observations follow from the table.

1. On the same dollars and ignoring fees and access, a linked offset account and an extra repayment of the same amount produce the same saving, which is $3,125 a year on these inputs. ASIC’s own illustration refers to more than $3,000 in a year, which is consistent with that figure.
2. If the offset account is not linked to the loan, the saving is nil. Nothing in the loan’s repayment schedule would necessarily show the difference, which is why the position needs to be checked and not assumed.
3. If the $50,000 held as an extra repayment is redrawn and spent, the saving on that amount stops, in the same way as it would if the offset balance were withdrawn.

The example excludes fees, any higher interest rate charged for the offset feature, the daily calculation of interest and the repayments themselves. It also excludes tax. Each of those matters in a real loan, and none of them is modelled here.

Where the two differ: access, cost and tax

The differences between the two features fall under three heads.

1. Access. Money in an offset account is held in a transaction account, so access follows the terms of that account. Money in redraw is accessed on the terms the lender sets for redraw, and as noted above, Moneysmart records that some lenders limit the amount, charge a fee or delay access. The practical consequence is that the borrower should read both sets of terms before relying on either.
2. Cost. ASIC states in REP 837 (July 2026, page 6) that “Customers typically pay more for offset accounts through higher interest rates, additional account fees, or a combination of both”. Moneysmart makes the same point, recording that some banks charge for offset features through higher interest rates, account fees, or both. Moneysmart adds that an offset account may not be worth paying for if the balance is always low, for example under $10,000 (Moneysmart, updated 9 September 2026). The cost of redraw is not described in comparable terms in the sources read, other than the fee and access limits already mentioned.
3. Tax. The Australian Taxation Office (ATO) page on interest expenses for rental properties, last updated on 21 May 2026, states that interest on a loan for a rental property is apportioned if the loan is used for private purposes, including after a redraw. Its worked example concerns a redraw of $9,500 spent on a television and a lounge suite, and it shows the deductible share of the interest falling as a result. The page also states that a deduction cannot be claimed for additional payments made to reduce the principal amount of the loan, and it refers the reader to taxation ruling TR 2000/2, paragraphs 19 and 20, on apportionment.

The ATO page does not discuss offset accounts. This article therefore draws no conclusion about their tax treatment, and prints no deduction percentage other than what the ATO’s example shows. A borrower with a rental loan should ask the ATO or a registered tax professional.

Returning to cost, take a hypothetical borrower whose offset balance sits below $10,000 for most of the year, which is the kind of case Moneysmart’s example describes. If the offset feature carries a higher interest rate, an account fee or both, that borrower may pay more for the feature than it saves in interest. Whether that is so depends on the lender’s terms, which this article does not know and does not assume.

What ASIC found in July 2026

ASIC published REP 837 on 29 July 2026. The report reviewed eight banks, which together account for more than 70 per cent of the home loan market, and examined 204,000 unique loans that settled between 1 March and 31 August 2025. Each figure below is taken from ASIC REP 837, July 2026, and is stated as at the date ASIC gives.

1. Scale of the feature. Offset accounts held about $349.1 billion at March 2026, up 28 per cent over two years (page 2). The report puts offsets at 14 per cent of total loans, up from 12 per cent at March 2024 (page 6).
2. Overall finding. All eight banks had gaps in the setting up, linking or managing of offset accounts. ASIC reported four findings: the banks could not readily identify offset requests; their detection of problems was inconsistent; they were slow to compensate customers and to fix errors; and customers lacked visibility of whether the offset was working.
3. Compensation. For failures reported to ASIC between 1 September 2023 and 31 August 2025, the banks had paid over $55 million in compensation, as at 31 May 2026.
4. Types of failure. The banks reported that 55 per cent of the failures were offset accounts that were opened but not linked, 22 per cent were accounts that were not opened, 14 per cent were accounts linked outside the timeframe communicated to the customer, and 9 per cent were other failures.
5. Causes of complaints. The most common causes were manual processes for requests made after the loan began, poor communication, and a failure to set up or link the offset when the loan was written.
6. A limit on the review. ASIC states that the review did not assess how the banks calculated interest (page 17).

The largest reported category, accounts that were opened but not linked, is also the one a borrower is best placed to test, because the borrower’s own online banking or app is where ASIC asks customers to look first.

The report names the eight banks. This article names none, because the findings are a description of the sector and not an assessment of any one lender. In the media release announcing the report (26-173MR), ASIC’s Chair said that when offset accounts do not operate correctly, the harm can be hidden. The release also encourages customers to confirm that their offset account has been set up, is linked to the correct loan and is reducing interest.

Two cautions apply to these figures. First, they are ASIC’s figures at the dates given, and a reader relying on any of them should consult the report. Second, the percentages in item 4 describe the failures that were reported. They are not a rate of failure across all offset accounts, and they should not be read as one.

How a borrower can check an offset account

ASIC asks customers to carry out three checks, and to start with the bank’s online banking or app before contacting the bank (REP 837, July 2026, page 4).

1. Confirm that the offset account has been set up.
2. Confirm that it is linked to the correct home loan.
3. Confirm that it is actually reducing the interest charged.

Moneysmart gives the same direction in different words. It advises borrowers to confirm the link through the app, online banking or statements, and to contact the bank if the saving cannot be seen (Moneysmart, updated 29 July 2026). It also advises checking after a refinance or a switch of loan.

That second point reflects a finding in REP 837 (July 2026, page 15). Changes to a loan, such as a refinance, a move between variable and fixed rates or a switch of product, can remove the link between a loan and its offset account, and a fresh request is usually needed to restore it. A borrower who has made any such change should therefore treat the link as unconfirmed until it has been checked.

ASIC gives two examples of what an unlinked offset can cost, and both should be read as ASIC’s illustrations and not as typical outcomes.

1. In one case described in REP 837 (page 6), a customer paid more than $3,500 in extra interest in just over one month after a link was removed in error.
2. In its illustration in Appendix 1 (page 16), on the inputs shown in the worked example above, ASIC states that the effect is more than $3,000 in a year, and that if the failure were never detected the cost could reach nearly $230,000 over the life of the loan and add four years to it.

What this article leaves out

This article prints no current interest rate. The only rate it uses is the one ASIC uses in its own illustration, and that rate is labelled as such. It names no lender and no product. It gives no tax advice and draws no conclusion on whether an offset account or a redraw facility is preferable for a rental loan. It does not comment on any response to the report. It also does not examine how interest is calculated on any loan, which ASIC did not assess either. For the terms of a particular loan, the lender’s documents are authoritative. For general guidance, Moneysmart and ASIC publish material for borrowers. For tax, the ATO and a registered tax professional are the appropriate sources.

Checking That Your Offset Is Working

The points that follow summarise the article. They are general information only.

1. Whether a borrower holds an offset account or a redraw facility, the interest reduction depends on the dollars held against the loan. On the same dollars and ignoring fees and access, the two give the same saving. They differ in access, in cost and, for a rental loan, in tax.
2. An offset account that is not linked to the loan reduces no interest. ASIC REP 837, July 2026, found gaps at all eight banks reviewed.
3. A borrower can check the position by confirming that the offset account has been set up, is linked to the correct home loan and is reducing interest. The check starts with online banking or the app, then the bank, and it is repeated after any refinance or change of loan product.
4. Questions about the terms of a loan belong with the lender, who holds the authoritative documents. Questions about tax belong with the ATO or a registered tax professional.

Where the position remains uncertain after those steps, the borrower should consult the lender’s own documents, ASIC and Moneysmart before acting, and a registered tax professional on any question of tax.

Sources: ASIC, REP 837 Offsets, out of mind: Banks fall short on mortgage offset account promises, 29 July 2026 (https://www.asic.gov.au/regulatory-resources/find-a-document/reports/rep-837-offsets-out-of-mind-banks-fall-short-on-mortgage-offset-account-promises/); ASIC, Media release 26-173MR, Hidden mortgage offset failures costing Australians millions in lost interest savings (https://www.asic.gov.au/about-asic/news-centre/find-a-media-release/2026-releases/26-173mr-hidden-mortgage-offset-failures-costing-australians-millions-in-lost-interest-savings); Moneysmart, Mortgage offset accounts, updated 29 July 2026 (https://moneysmart.gov.au/home-loans/mortgage-offset-accounts); Moneysmart, Pay off your mortgage faster, updated 9 September 2026 (https://moneysmart.gov.au/home-loans/pay-off-your-mortgage-faster); Australian Taxation Office, Interest expenses for rental properties, updated 21 May 2026 (https://www.ato.gov.au/individuals-and-families/investments-and-assets/property-and-land/residential-rental-properties/rental-expenses/interest-expenses)