Both features let you use your own savings to reduce the interest charged on your home loan, and on the surface they look similar: put extra money in, pay less interest, take it out again if you need to. But how they're structured is different enough to matter, especially if you ever plan to move out and rent the property.
How an offset account works
An offset account is a separate transaction account linked to your loan. The bank calculates your loan's daily interest on the loan balance minus whatever sits in the offset account. So $20,000 sitting in an offset against a $500,000 loan means you only pay interest as if the loan were $480,000, while the $20,000 stays fully accessible like a regular bank account.
How a redraw facility works
A redraw facility lets you make extra repayments directly onto the loan itself, reducing the balance the same way an offset does, and then draw that extra money back out later if you need it. The interest saving is similar, but the money isn't sitting in a separate account — it's part of the loan.
Where it matters: rental properties
If you ever convert your home into an investment property, the distinction becomes financially significant. Money in an offset account is still your own savings — withdrawing it doesn't change your loan balance or your deductible interest. Redrawing extra repayments, on the other hand, effectively increases your loan balance again, and the tax office may not treat that portion of interest as deductible if the funds weren't used for an investment purpose.
If there's any chance you'll rent the property out later, an offset account is generally the safer structure to keep your options open. If you're certain it will always be your home, either option can work, and some loans offer both.
This is general information, not personal financial or tax advice — talk to your accountant about how it applies to your situation, and to us about which loans offer the structure you want.