Is the daily payment just interest? What you get back and what you don't

"The daily payment is just dead money." It's one of the things families say most often when they first see an aged care room price. There's some truth in it. But it's only half the picture, because paying a lump sum has costs of its own.

This guide covers people entering an aged care home from 1 November 2025 who aren't on low means.

How the daily payment is worked out

Every room has an agreed price, written into the accommodation agreement before your parent moves in. Your parent can pay that price in one go, as a refundable accommodation deposit (RAD), or day by day, as a daily accommodation payment (DAP), or with a mix of both.

The DAP is worked out on whatever part of the price hasn't been paid as a lump sum:

DAP = (agreed room price − any lump sum paid) × MPIR ÷ 365

The MPIR is a government interest rate, the maximum permissible interest rate. For prices agreed now, it's 8.51% a year.

Your parent's rate is fixed on the day the room price is agreed. It stays the same while they stay in that room, even when the published MPIR changes each quarter. It's set again if your parent chooses to move rooms, or if the home moves them for 28 days or more.

So is it interest?

It's calculated like interest, but it isn't a loan repayment. Nothing is being paid off. Paying the DAP for a year doesn't reduce the room price still owed. It's simply the cost of the room for each day the price isn't paid as a lump sum.

That's why many families compare it with rent. Like rent, it buys the use of the room, and none of it comes back.

It also goes up over time

For people entering from 1 November 2025, the DAP is indexed each 20 March and 20 September, in line with the consumer price index. So the daily amount usually rises a little twice a year. Any figure for a future indexation date is an estimate until the official index number is published.

A lump sum isn't indexed.

What you get back

	Daily payment (DAP)	Lump sum (RAD)
Refunded?	No. Each day's payment is spent.	Yes. What's left comes back when your parent leaves the home or dies.
Reduced over time?	Not applicable	Yes: retention is taken out each year for up to five years, and anything drawn from it, such as fees, also reduces it.
Changes with indexation?	Yes, twice a year	No

When your parent leaves the home, the refund is usually due within 14 days. If they're moving to another aged care home and gave more than 14 days' notice, it's due on the day they leave. If your parent dies, the home has 14 days from being shown probate or letters of administration. Where there's no probate, other evidence the home accepts can be used instead. A government scheme protects the refund if the provider becomes insolvent.

What a lump sum costs, even though it comes back

A lump sum isn't free money parked with the home. It has its own costs:

• Retention. The home keeps 2% of the balance a year, worked out daily, for up to five years. That part isn't refunded. See our guide to retention.
• What the money could have done. Money held as a deposit can't earn interest elsewhere, or be spent on other things.
• Aged care fees. A paid RAD counts as an asset in the means assessment, which can affect the means-tested contributions. It isn't treated as a financial investment, though, so no income is deemed on it.

And the Age Pension sees it differently again. A paid RAD isn't counted in the pension assets test. Cash kept in the bank instead is counted and deemed to earn income at 1.75% and 3.75%.

The fair comparison

So the question isn't really "DAP or no DAP". It's closer to this:

• the daily payments over the time your parent may be in care, rising with indexation;
• against the retention and the income the lump sum could have earned if it stayed invested;
• plus any effect on the aged care fees and the pension, which can go either way.

Which way that falls depends on how long care lasts, what the money would otherwise be doing, and whether the house is kept or sold. Families also weigh up keeping some cash on hand, and how the monthly bills will be paid.

See the comparison

The Aged Care Costs calculator compares the ways of paying for the room, year by year, over a stay of one to ten years that you choose. Where a lump sum is part of the comparison, it includes the retention taken and the balance left. It also includes indexation of the daily payment. For future indexation, we assume prices rise about 2.8% a year, based on the Reserve Bank's forecast. This is our estimate, not a government figure. The comparison says so, and those figures are labelled as estimates. A note beside the totals explains that the means-tested contributions are left out, and shows today's daily amounts for them.

Choosing between them depends on your family's circumstances, so before deciding, consider talking it through with a licensed financial adviser who specialises in aged care.

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