The decision nobody explains properly
When a family finally finds an aged care home with a room available, the conversation moves very quickly from care to money — and specifically to a question most people have never faced before: do you want to pay the room price as a lump sum or as a daily amount? The lump sum is called a refundable accommodation deposit (RAD). The daily amount is a daily accommodation payment (DAP). You can also combine the two in any proportion. The choice is yours by law — a home cannot force you to pay a RAD — and you have 28 days after entering care to decide.
This guide explains how each option works, what happens to the money, how the two are mathematically linked, and the practical situations where one structure clearly beats the other. It reflects the framework under the Aged Care Act that took effect on 1 November 2025; rates and caps are indexed, so always confirm the current figures on My Aged Care or with Services Australia before signing.
What the RAD actually is
A RAD is an interest-free loan from you to the aged care provider. You pay a lump sum — commonly anywhere from around $300,000 in regional areas to $800,000 or more for premium metropolitan rooms — and the home holds it for as long as you live there. When you leave or pass away, the balance is refunded to you or your estate. The refund is government-guaranteed: if the provider becomes insolvent, the Accommodation Payment Guarantee Scheme repays the deposit. That guarantee is one of the most underappreciated features of the system — a RAD is one of the few large payments in aged care that comes back.
Three things matter about the mechanics:
- The refund is of the balance, not necessarily the full amount. A provider may deduct amounts you have agreed to have drawn from the RAD (for example, if you asked for the DAP on the unpaid portion, or certain fees, to be deducted from the deposit rather than paid from your bank account) and, under the post-November-2025 framework, a retention amount applies to new residents — a small percentage of the RAD retained per year, capped at a maximum number of years. Ask the home to show you exactly how the retention is calculated in the agreement before you sign.
- The room price must be published. Every home must publish its maximum accommodation price for each room type on My Aged Care and on its own website. Prices above a government threshold need approval from the Independent Health and Aged Care Pricing Authority. If a home quotes you a figure that is not published anywhere, that is a red flag worth raising.
- The RAD affects means testing differently from other assets. The deposit is counted as an asset in the aged care means assessment, but it is exempt from the Age Pension assets test. Moving money from a bank account into a RAD can therefore increase a pension entitlement while leaving aged care fees roughly where they were. This single interaction is why financial advice before paying a RAD so often pays for itself.
What the DAP actually is
If you do not pay the lump sum, you pay interest on the unpaid amount instead. The DAP is calculated by multiplying the unpaid RAD by the maximum permissible interest rate (MPIR) — a rate set by the government and updated quarterly — and dividing by 365. The MPIR that applies is the one current on the day you enter care, and it is then locked in for your agreement.
A worked example with illustrative numbers: suppose the room price is $550,000 and the MPIR at entry is 8% per year. The full DAP would be $550,000 × 8% ÷ 365 ≈ $120 per day — roughly $3,660 a month, on top of the basic daily fee and any means-tested contribution. Unlike the RAD, DAP payments are not refunded. They are gone, exactly like rent or interest. Under the current framework, DAPs for new residents are also indexed over time rather than staying flat, so the daily amount can rise while you are in care.
The combination option families overlook
You can pay any split — for example $300,000 as a partial RAD, with the DAP charged only on the remaining $250,000. In the example above, that cuts the daily payment to about $55. Combinations are the most common choice in practice, because they let a family commit the cash they can free up now (often while waiting for a property to sell) without borrowing or fire-selling assets. A useful pattern: pay what you can as a partial RAD on entry, then convert more of the DAP to RAD later when the house settles. Homes must accept a top-up at any time.
RAD or DAP: how to actually decide
There is no universally right answer, but the decision usually turns on four questions.
1. Is there a house, and is anyone protected living in it?
If a spouse, a carer who qualifies, or another protected person still lives in the family home, the home is largely sheltered in the means assessment and there is no pressure to sell. In that case a large RAD is often impossible anyway, and a DAP (or small partial RAD from savings) is the practical route. If the house will be sold because nobody lives there, the sale proceeds are exactly the kind of capital a RAD is designed for — and parking them in the RAD shields them from the pension assets test.
2. What would the money earn elsewhere?
Paying a RAD "earns" you the MPIR risk-free, because every dollar of RAD avoids a dollar of DAP interest. When the MPIR is around 7–8%, beating that after tax and risk with an ordinary investment portfolio is genuinely hard, which is why advisers so often lean towards paying as much RAD as liquidity allows. The calculation flips if the family expects a short stay (see below) or needs the capital for something else.
3. How long is the stay likely to be?
The average stay in residential aged care is measured in a small number of years, and for entries following a health crisis it can be much shorter. For a short expected stay, the transaction costs of freeing up capital (selling a property, crystallising capital gains, losing pension entitlements during the process) can outweigh months of DAP. Families in this situation often choose DAP-only deliberately, knowing it is the more expensive option per day but the cheaper one overall.
4. How much liquidity does the resident need to keep?
Never pay a RAD down to the last dollar. The resident must, by law, be left with at least a minimum asset threshold, and in practice should keep a comfortable buffer beyond it for the basic daily fee, means-tested contributions, extra services, and life. A RAD that strips all liquidity creates a problem the family will feel within months.
Mistakes we see repeatedly
- Signing the agreement without negotiating the room price. Published prices are maximums. Homes with vacancies negotiate, especially on less popular rooms.
- Deducting the DAP from the RAD without noticing. It feels painless, but it shrinks the refundable balance and increases the DAP over time as the unpaid portion grows. Agree to it only deliberately.
- Ignoring the pension interaction. Paying a RAD from cash can raise the Age Pension; selling the home changes the means assessment after a transition period. Sequence matters — get advice from an adviser accredited in aged care before, not after, the move.
- Assuming the choice is final. You can convert DAP to RAD later. You cannot get RAD back while staying, so ratchet upwards, not downwards.
Where Curalune fits in
The room-price decision comes at the end of a search that is stressful enough already. Curalune Care Help exists for the step before it: we prepare a shortlist of 3–5 aged care homes suited to your situation and area, with published room prices, contacts and a ready-to-send enquiry, so you compare real options instead of brochures. Admission, prices, Star Ratings and availability are always confirmed by the home and My Aged Care — and for the RAD/DAP structure itself, independent financial advice is worth every dollar.