In terms of interest savings, a redraw facility has much the same effect as a 100% offset account.
Therefore, what are the advantages of one over the other?
Offset accounts are essentially savings accounts and operate that way. There will be easy access to your funds. Most come with an ATM, EFTPOS and cheque access. There is usually internet and/or phone banking available. Some include a credit card as part of a package.
Ideally, you can arrange to have all of your salary paid directly into the offset account, which ensures that any income not spent is being used to reduce the balance of your loan. So, while you’re receiving the interest savings, you also have peace of mind in knowing that you can access your funds at any time.
Redraws on the other hand are often are more restrictive. Some institutions will limit you to as few as two redraws per year, while others have a minimum redraw amount. Some even charge a fee per withdrawal.
Redraw facilities and offset accounts don’t all operate the same way. More details can be found on our “How Does Redraw Work” and How Does an Offset Account Work”
There can be very substantial taxation implications if at some time in the future you decide to purchase a new home and convert existing home into an invest property. In this scenario you have to use an offset facility rather than redraw – the ATO treats the offset far more favourably and this can save tens of $thousands.
NOTE: We are not tax advisers so please seek confirmation of this from your accountant or financial adviser.
