What Is a Refundable Accommodation Deposit (RAD)?

When you start looking at residential aged care, you'll immediately run into a scary number: the "room price" or RAD. It looks like you're being asked to pay $500,000+ just to move in. Here's what it actually is and how it works.

What is a RAD?

A Refundable Accommodation Deposit (RAD) is a lump sum paid to an aged care facility for the right to occupy a room. Think of it as a very large security deposit rather than a purchase price.

The facility holds onto the money while you're in care. When you leave (or pass away), it's refunded to you or your estate.

Is it really refundable?

Yes, with one small catch. Providers are allowed to retain 2% per year, capped at 5 years (so a maximum 10% total). After that, everything is refundable.

For a $500,000 RAD:

• Year 1: $10,000 retained (refundable: $490,000)
• Year 2: $20,000 retained (refundable: $480,000)
• Year 3: $30,000 retained (refundable: $470,000)
• Year 4: $40,000 retained (refundable: $460,000)
• Year 5+: $50,000 retained (refundable: $450,000)

The retention never exceeds 10% total. Regardless of how long you stay, at least 90% of the RAD comes back to you or your estate.

How is the RAD price set?

Each facility sets its own advertised price for each room. Prices depend on:

• Location. Sydney and Melbourne inner suburbs are the most expensive.
• Room type. Private vs shared, size, view, ensuite.
• Facility quality. Star ratings, amenities, age of the building.
• Maximum cap. Providers can charge up to $750,000 without government approval; higher requires approval.

National average RAD: $470,000 to $570,000

You can negotiate the price. Just like any other big purchase, there's often some room to move, especially in facilities with occupancy concerns.

Do you have to pay it?

No. You have three options:

1. Pay the full RAD upfront (lump sum)
2. Pay a Daily Accommodation Payment (DAP) instead, a daily fee roughly equivalent to the interest on the RAD
3. Pay a combination of both (a partial RAD plus a smaller DAP)

You don't have to decide immediately. You have 28 days after moving in to decide how you'll pay.

Why would you pay a RAD?

There are three reasons people choose to pay a lump sum:

1. It reduces your assessable assets

This is the biggest hidden benefit. The RAD amount is not counted toward the assets test. So if you pay a $500,000 RAD, your assessable assets drop by $500,000, which may:

• Increase your Age Pension
• Reduce your means-tested aged care fees
• Shift you from part pensioner to full pensioner

2. It eliminates the daily accommodation fee

DAP is typically around $114/day ($41,600/year) for a $500,000 room. A full RAD eliminates that.

3. It's refundable

Unlike DAP (which is gone forever), the RAD comes back. So it's "parked" rather than "spent."

Where does the money come from?

Most people fund the RAD from:

• Home sale proceeds (after selling the family home)
• Superannuation (lump sum withdrawals, if you're over preservation age)
• Savings and investments
• A combination of the above

If you don't have enough liquid assets, that's fine. You can pay a smaller RAD and the rest as DAP, or just pay everything as DAP.

What happens to the RAD when you pass away?

The RAD (minus any retention) is returned to your estate. It typically takes 14 days after the facility receives notice of your leaving care.

From the estate, it's distributed according to your will like any other asset. Your heirs get the refund.

Is the RAD protected if the facility goes bankrupt?

Yes. RADs are protected by a government guarantee scheme. If your provider becomes insolvent, the government will refund your RAD. You won't lose it.

This makes RADs one of the safer places to "park" a large sum of money from a security perspective.

Common misconceptions

"The RAD is gone if I pay it." No. It's refundable (minus retention). You get it back.

"I have to pay the RAD to get a room." No. You can pay DAP instead or a combination. Providers can't require you to pay RAD as a condition of entry.

"RADs are risky because the provider could go bankrupt." No. The government guarantee protects your RAD.

"The RAD counts as an asset for the pension." No. This is one of the key benefits. The RAD is excluded from the assets test.

"I need to decide before moving in." No. You have 28 days after entry to decide how to pay.

The bottom line

A RAD is just a large refundable deposit. It looks scary because the numbers are big, but it's:

• Refundable (minus 2% per year, max 10% total)
• Protected by government guarantee
• Not counted as an asset for the means test
• Optional (you can pay daily instead)

For people with home sale proceeds or super to draw from, paying a RAD often comes out significantly ahead of paying DAP because it preserves your pension and eliminates the ongoing accommodation fee.

The best way to see which option works for you is to run both through a calculator.