When moving into residential aged care in Australia, one of the most significant financial decisions you will face is how to pay for your accommodation. The two main options are a Refundable Accommodation Deposit (RAD) or a Daily Accommodation Payment (DAP), and understanding the difference between these payment methods is essential for making the right choice for your financial situation.

This guide explains the RAD vs DAP decision in practical terms, provides a calculator formula to compare costs, explores when each option makes financial sense, and helps you understand the impact of the Maximum Permissible Interest Rate (MPIR) on your accommodation costs.

For broader context on aged care fees and costs, see our nursing home costs calculator.

Key Points

  • RAD is a lump sum deposit that is fully refundable when you leave care; DAP is a daily fee paid periodically
  • DAP is calculated as (RAD x MPIR) / 365, where MPIR is currently 7.65 percent (as of January 2026)
  • You can choose to pay all RAD, all DAP, or any combination (such as 50 percent RAD plus reduced DAP)
  • RAD is better if you have available capital and want lower ongoing costs; DAP is better if you want to preserve capital or expect a shorter stay
  • The MPIR changes quarterly, which affects the cost of choosing DAP over RAD
  • RADs are government-guaranteed and fully refundable to your estate

Understanding RAD and DAP

What is a RAD (Refundable Accommodation Deposit)?

A RAD is a lump sum payment made to the aged care facility for the cost of your accommodation (your room). It is similar to a security deposit for a rental property, but significantly larger.

Key features of RAD:

  • Refundable: The full RAD amount is refunded when you permanently leave the facility (either moving elsewhere or upon death)
  • Interest-free: The facility holds the RAD but does not pay you interest on it
  • Government-guaranteed: RADs are protected by the Australian Government if the provider becomes insolvent
  • Negotiable: The room price (and therefore the RAD amount) is negotiated between you and the facility

RADs typically range from $200,000 to $1,000,000 depending on the location, facility quality, and room type. Premium facilities in Sydney or Melbourne can have RADs exceeding $1,500,000 for luxury rooms.

What is a DAP (Daily Accommodation Payment)?

A DAP is a daily fee paid instead of (or in addition to) a RAD. It is calculated as the interest equivalent of the unpaid portion of the RAD, using a government-set interest rate called the Maximum Permissible Interest Rate (MPIR).

Key features of DAP:

  • Non-refundable: Once paid, DAP is not refunded
  • Paid periodically: Usually fortnightly or monthly, depending on the facility
  • Variable cost: DAP amounts change when the MPIR changes (quarterly)
  • No lump sum required: Suitable for people who do not have large amounts of capital available

For example, if the agreed room price is $500,000 and the MPIR is 7.65 percent, the full DAP (if no RAD is paid) would be:

($500,000 x 7.65%) / 365 = $104.79 per day or approximately $38,247 per year

Combination Payments

Most residents do not choose purely RAD or purely DAP. Instead, they pay a partial RAD plus a reduced DAP. For example:

  • Room price: $500,000
  • Partial RAD paid: $250,000 (50 percent)
  • Remaining balance: $250,000
  • Reduced DAP: ($250,000 x 7.65%) / 365 = $52.40 per day

This approach allows you to retain some capital while reducing your ongoing daily costs.

How to Calculate DAP from RAD

The formula for calculating DAP is straightforward:

DAP = (RAD amount x MPIR) / 365

Where:

  • RAD amount is the agreed room price (or the unpaid portion if you paid a partial RAD)
  • MPIR is the Maximum Permissible Interest Rate, currently 7.65 percent as of January 1, 2026
  • 365 converts the annual interest into a daily rate

Example Calculations

Example 1: Full DAP (no RAD paid)

  • Room price: $400,000
  • RAD paid: $0
  • MPIR: 7.65%

DAP = ($400,000 x 7.65%) / 365 = $83.84 per day

Annual cost = $83.84 x 365 = $30,602

Example 2: Partial RAD + Reduced DAP

  • Room price: $600,000
  • RAD paid: $300,000
  • Remaining balance: $300,000
  • MPIR: 7.65%

DAP = ($300,000 x 7.65%) / 365 = $62.88 per day

Annual cost = $62.88 x 365 = $22,951

Example 3: Full RAD (no DAP)

  • Room price: $450,000
  • RAD paid: $450,000
  • Remaining balance: $0

DAP = ($0 x 7.65%) / 365 = $0 per day

No ongoing accommodation costs (other than basic daily care fees).

RAD vs DAP: Which Should You Choose?

The choice between RAD and DAP depends on your financial situation, life expectancy, investment returns, and personal preferences.

When to Choose RAD (Lump Sum Deposit)

Choose RAD if:

  1. You have available capital: Savings, investment portfolio, or proceeds from selling your home
  2. You want predictable costs: RAD eliminates the risk of MPIR increases affecting your DAP
  3. You expect a long stay: The longer you stay, the more you save by avoiding DAP
  4. Your investments earn low returns: If your money is in a savings account earning 2 percent, you are better off paying RAD (avoiding 7.65 percent DAP cost)
  5. You want to preserve income: Paying RAD reduces ongoing cash flow needs

Example scenario:

Margaret has $800,000 in savings earning 3 percent interest annually. Her aged care room costs $500,000. If she pays the full RAD, she retains $300,000 earning $9,000 per year. If she pays DAP instead, she keeps the full $800,000 but pays $38,247 per year in DAP. Even with her savings interest, she is worse off paying DAP.

When to Choose DAP (Daily Payments)

Choose DAP if:

  1. You lack available capital: You do not have a large lump sum to pay as RAD
  2. You expect a short stay: If you only stay 6 to 12 months, you pay much less total cost via DAP than tying up a RAD
  3. Your investments earn high returns: If your portfolio earns 10 percent+, keeping capital invested may outweigh the DAP cost
  4. You want to preserve assets for beneficiaries: DAP preserves capital that can be passed to your estate
  5. You have liquidity concerns: You have assets (such as property) but not liquid cash

Example scenario:

John has $1,200,000 in a diversified investment portfolio earning 9 percent annually. His room costs $500,000. If he pays the full RAD, he loses $45,000 per year in investment returns. If he pays DAP at $38,247 per year, he is ahead by $6,753 annually while retaining full control of his capital.

When to Choose a Combination

Most people choose a partial RAD plus reduced DAP because it balances:

  • Retaining some capital for emergencies or family
  • Reducing ongoing cash flow pressure
  • Maintaining investment flexibility

A common strategy is to pay 50 percent RAD and 50 percent DAP, adjusting based on personal circumstances.

The MPIR and Its Impact on DAP Costs

The Maximum Permissible Interest Rate (MPIR) is set by the Australian Government and updated quarterly based on the Bond Rate published by the Reserve Bank of Australia.

MPIR Historical Rates

PeriodMPIR
January 1, 20267.65%
October 1, 20257.61%
July 1, 20257.42%
April 1, 20257.30%
January 1, 20257.15%

As the MPIR increases, DAP becomes more expensive. If you are paying DAP, your daily cost rises when the MPIR increases (unless your facility agreement specifies otherwise).

MPIR Risk for DAP Payers

If you choose to pay DAP, you are exposed to MPIR fluctuations. For a $500,000 room price:

  • At 7.00 percent MPIR: DAP = $95.89 per day
  • At 7.65 percent MPIR: DAP = $104.79 per day
  • At 8.50 percent MPIR: DAP = $116.44 per day

An increase of 0.65 percentage points adds $8.90 per day, or $3,249 annually. This is a significant cost increase, particularly for long-term residents.

Paying a full or partial RAD locks in your accommodation cost and eliminates MPIR risk.

Financial Planning Considerations

Both RAD and DAP have implications for your Age Pension and means testing:

RAD:

  • Counts as an exempt asset for Age Pension purposes (up to the approved amount)
  • Reduces your assessable assets, potentially increasing your Age Pension entitlement

DAP:

  • You retain the capital, which remains assessable for Age Pension
  • May reduce your Age Pension if assets exceed the threshold
  • DAP payments are not tax-deductible

Strategy: If you are close to the Age Pension asset threshold, paying a RAD may help you qualify for a higher pension. Consult a financial adviser or aged care specialist for personalised advice.

Estate Planning

RAD:

  • The full RAD is refunded to your estate when you leave care or pass away
  • Refund usually occurs within 14 days of room vacation and documentation
  • Your beneficiaries receive the full amount (not reduced by years of residence)

DAP:

  • Preserves capital during your lifetime
  • Capital remains in your estate for beneficiaries
  • However, ongoing DAP payments deplete cash reserves

If preserving wealth for your family is a priority, weigh the total DAP cost over your expected length of stay against the benefit of retaining capital.

Cash Flow Management

RAD advantages:

  • Lower ongoing costs
  • Easier budgeting (no large quarterly DAP invoices)
  • Reduces stress about running out of money

DAP advantages:

  • No large upfront payment
  • Flexibility to adjust payment structure later
  • Retains emergency funds

Many families find peace of mind in paying a RAD (if affordable) to avoid worrying about ongoing costs and MPIR fluctuations.

How to Negotiate Accommodation Costs

Room Price is Negotiable

The published room price is not fixed. You can negotiate with the aged care facility based on:

  • Your financial circumstances
  • Room availability and demand
  • Length of stay commitment
  • Timing (off-peak periods may offer better rates)

Do not assume the advertised price is final. Ask about discounts, promotions, or reduced rates for early payment.

What to Negotiate

  • Lower room price: Reduces both RAD and DAP costs
  • DAP rate lower than MPIR: Some facilities offer discounted DAP rates
  • Partial RAD incentives: Facilities may prefer partial RAD upfront and offer better terms

Bring evidence of your financial assessment and be prepared to discuss your preferred payment structure.

Get Independent Advice

Before signing an accommodation agreement, consider consulting:

  • An aged care financial adviser
  • A solicitor experienced in aged care contracts
  • Centrelink Financial Information Service (free service)

Mistakes in choosing RAD vs DAP can cost tens of thousands of dollars over a long stay.

March 2026: Ministerial Investigation Into Premium Service Fees

On 16 March 2026, the Aged Care Minister announced an investigation into claims that some aged care providers are charging premium fees for basic services that should be covered under standard care arrangements. The Minister specifically named Opal Healthcare as one provider under scrutiny, calling the practice “disgusting sidestepping” of aged care regulations.

When negotiating your RAD or DAP arrangement, carefully review the Resident Agreement to ensure you understand exactly what is covered by your accommodation payment and what additional fees (if any) you may be charged. Accommodation payments should cover your room and basic living amenities. Providers should not be adding unexpected premium fees for services that are standard care requirements.

If you believe you are being charged inappropriately for services that should be included in your accommodation payment or standard care fees, lodge a complaint with the Aged Care Quality and Safety Commission on 1800 951 822. The Minister emphasized that Australians expect and deserve dignity in aged care, not exploitative pricing practices.

Source: ABC News, 16 March 2026

Frequently Asked Questions

What is the difference between RAD and DAP?

A RAD (Refundable Accommodation Deposit) is a lump sum payment for your aged care room that is refunded when you leave. A DAP (Daily Accommodation Payment) is a daily fee paid periodically instead of a lump sum. You can choose to pay all RAD, all DAP, or a combination of both.

How is DAP calculated from RAD?

DAP is calculated using the formula: (RAD amount x MPIR) / 365. The MPIR (Maximum Permissible Interest Rate) is set by the government and updated quarterly. As of January 1, 2026, the MPIR is 7.65 percent.

Which is better, paying RAD or DAP?

It depends on your financial situation. Pay RAD if you have available assets and want lower ongoing costs. Pay DAP if you prefer to preserve capital, expect a shorter stay, or can earn higher returns on your investments. Many people choose a combination of partial RAD plus DAP.

Is a RAD refundable when I die or leave care?

Yes. The RAD is fully refundable when you permanently leave the aged care facility, either to move elsewhere or upon death. The facility must refund the RAD to your estate within 14 days of your room being vacated and all required documentation being provided.

Can I change from DAP to RAD after moving in?

Yes, you can convert from DAP to RAD (or vice versa, or adjust the combination) after you have moved in. You will need to negotiate this with your aged care provider. Any DAP already paid is not refundable, but you can reduce future DAP by increasing your RAD contribution.

What is the current MPIR for 2026?

The Maximum Permissible Interest Rate (MPIR) as of January 1, 2026 is 7.65 percent. The MPIR is updated quarterly by the Australian Government and determines how DAP is calculated from RAD amounts.

Do I have to pay accommodation costs in aged care?

It depends on your means-tested assessment. If your assessable assets are below $210,555.20 (as of 2026), you may pay a reduced accommodation contribution or be fully supported by the government. If assets exceed this threshold, you pay the agreed room price as RAD, DAP, or a combination.

What happens to my RAD if the aged care facility closes?

RADs are protected by government guarantee. If an aged care provider becomes insolvent or closes, the Australian Government guarantees your RAD will be refunded. This protection applies to all RADs paid on or after July 1, 2014.

Key Resources

Making the Right Choice for Your Situation

The RAD vs DAP decision is one of the most significant financial choices you will make when entering aged care. There is no single right answer; the best option depends on your available capital, investment returns, expected length of stay, and personal preferences around cash flow and estate planning.

Most residents benefit from a combination approach, paying a partial RAD to reduce ongoing costs while retaining some capital for flexibility and security. Always seek professional financial advice tailored to your individual circumstances before committing to an accommodation agreement.

For a broader understanding of all aged care costs (not just accommodation), see our complete guide to nursing home costs in Australia.

Need help understanding your aged care costs and payment options? Connect with MD Home Care to access providers and financial advisers who can guide you through the RAD vs DAP decision.