What an offset account actually is
An offset is a regular transaction account linked to your loan. The balance sitting in it is subtracted from your loan balance before interest is calculated. Put $50,000 in an offset against a $600,000 loan and you are charged interest on $550,000.
Critically, the money in the offset is still your money, sitting in your account. You have not repaid the loan.
What redraw actually is
Redraw is different. When you pay extra into the loan, that payment reduces the loan balance. Redraw is the lender allowing you to borrow that money back later.
Day to day the interest saving feels identical. The distinction is legal and it matters at tax time.
Where it becomes expensive
Say you buy a home, pay $100,000 into redraw over several years, then decide to keep the property as an investment and buy a new home. You pull the $100,000 back out of redraw to use as your new deposit.
The Australian Taxation Office looks at the purpose of the borrowing. Redrawing money to buy an owner-occupied home is borrowing for a private purpose, so that portion of the interest is generally not deductible against the rental income — even though the loan sits against the investment property.
Had the same $100,000 sat in an offset account instead, the investment loan balance would have stayed at its original level, the deductible interest would have been preserved, and the cash would have been free to move.
The practical rule
If there is any chance the property becomes an investment, savings generally belong in an offset rather than in redraw. If the property will unquestionably remain your home forever, the difference is mostly one of access and discipline.
Very few people know at purchase which of those two futures they are in. That uncertainty is itself an argument for structure.