RAD vs DAP: Which Is Better for You? (2026)

When you move into residential aged care, you'll face one of the biggest financial decisions: how to pay for your room. The facility advertises a price (typically $300,000 to $700,000), and you have three options. You can pay the lump sum, pay daily, or split it. Here's how to work out which one makes sense for you.

The two options explained

RAD: Refundable Accommodation Deposit

You pay the full room price upfront as a lump sum. When you leave care (or pass away), the money is returned to you or your estate.

The catch: The facility retains 2% per year for up to 5 years, so a $500,000 RAD becomes refundable at around $450,000 after 5 years.

The benefit: No daily accommodation fee. Your money is "parked" rather than spent.

DAP: Daily Accommodation Payment

Instead of paying a lump sum, you pay a daily fee. The amount is calculated using the government's Maximum Permissible Interest Rate (MPIR, currently ≈8.34%):

DAP = (RAD × MPIR%) ÷ 365

So for a $500,000 room at 8.34% MPIR: $500,000 × 0.0834 ÷ 365 = ≈$114/day (or about $41,600/year)

The catch: DAP is non-refundable. You never get it back.

The benefit: You don't need a large lump sum, and your savings stay invested.

Hybrid: Best of both

You can pay any portion as RAD and the rest as DAP. For a $500,000 room, you might pay $200,000 as RAD and the remaining $300,000 equivalent as a smaller daily fee (≈$68/day).

Worked example: a $500,000 room over 5 years

At first glance, RAD looks dramatically cheaper. But that comparison misses two things:

1. Opportunity cost. The $500,000 could have been earning returns elsewhere (investments, super, etc.)
2. Pension impact. RAD reduces your assessable assets, potentially increasing your Age Pension.

How RAD affects your pension

Here's where it gets interesting. The RAD lump sum is not counted as an assessable asset for the Age Pension. So if you pay a RAD:

• Your assessable assets go down by the RAD amount
• Your Age Pension may go up
• Your means-tested aged care fees may go down

This is the hidden value of paying a RAD. Beyond "parking money," it can actually increase your pension entitlement.

When to choose RAD

Paying a lump sum usually makes sense if:

• You have the liquid assets (from selling your home, super, etc.)
• You want to maximise your Age Pension
• You're concerned about the long-term drain of daily payments
• You want to preserve estate value for family

When to choose DAP

Paying daily usually makes sense if:

• You don't have liquid assets to hand
• You expect a shorter stay in care
• Your money is earning more elsewhere than the MPIR rate (≈8.34%)
• You don't want to lock up capital

When to choose hybrid

Hybrid often makes sense if:

• You have some but not all of the RAD amount available
• You want to diversify (part locked up, part cash flow)
• You want partial pension benefits without committing the full RAD

Common mistakes

• Assuming RAD is always "cheaper". You have to factor in what the money could have earned elsewhere.
• Forgetting the retention rate. Providers keep 2% per year (up to 5 years), so the full RAD isn't refunded.
• Not modelling pension impact. The hidden boost to your Age Pension can tip the scales significantly.
• Paying DAP when you could have invested the RAD better. If you can earn more than 8.34% return, DAP might work out better, but that's not guaranteed.

The bottom line

There's no universally "right" answer. For most people with a family home they're selling, paying a RAD makes sense because it preserves their pension and gives them a refundable parking spot for the money. For people without liquid assets or who expect a short stay, DAP is simpler.

The best way to decide is to model both options with your actual numbers. Our calculator does this automatically, showing you the 5-year projected cost for each option, the pension impact, and what happens to your estate value.