A plain-English guide to accommodation payment options
If you’ve started looking into aged care costs, you’ve probably come across RAD and DAP without a plain explanation of what they actually mean. Both are ways of paying for your room in an aged care home, and choosing between them is one of the more significant financial decisions a family makes during this process. This guide explains what each option involves, how the numbers work, and what to weigh up before deciding.
What you pay for a room sits alongside the other aged care fees rather than replacing them. For a full overview of what aged care costs in Australia, see our guide to aged care costs. Every figure here is sourced from My Aged Care and the Department of Health, Disability and Ageing, and applies at a sector level, not to any specific CraigCare home.
What RAD and DAP actually are
Most people entering an aged care home agree a room price with their provider before moving in. How you pay that price is largely up to you, and there are three ways to do it.
A Refundable Accommodation Deposit (RAD) is a lump sum. You pay the agreed room price upfront, and the balance is refunded when you leave the home, less any deductions that have been agreed or are required, including RAD retention (covered below).
A Daily Accommodation Payment (DAP) is an ongoing daily payment instead of a lump sum. It works more like rent: you pay for as long as you’re in care, and it isn’t refunded.
A combination payment splits the room price between the two. You pay part as a lump sum and the rest as a smaller daily payment on the remaining balance.
Room prices are not unlimited. A provider wanting to charge above a government-set maximum for a room needs approval from the Independent Health and Aged Care Pricing Authority (IHACPA) before it can do so. That maximum is reviewed periodically, and the current figure is published by the Department of Health, Disability and Ageing.
If your means assessment finds you qualify for government assistance with accommodation costs, the equivalent government-assisted versions are called a Refundable Accommodation Contribution (RAC) and a Daily Accommodation Contribution (DAC). These work the same way, but the amount is worked out by Services Australia based on your means assessment rather than negotiated directly with your provider.
How the daily payment amount is calculated
If you choose a DAP, the amount isn’t set arbitrarily. It’s calculated by applying the Maximum Permissible Interest Rate (MPIR) to your agreed room price and dividing by 365.
As an illustration only, at the MPIR applying from 1 July to 30 September 2026 (8.43%), a $500,000 room price works out to a DAP of around $115 per day. The MPIR is updated quarterly, so the rate that applies to you is whichever one is current on the day you agree your room price, and it stays fixed at that rate from then on, even if the MPIR changes later.
If you choose a combination payment, the same formula applies to whatever portion of the room price remains after your lump sum. Paying more upfront reduces the daily amount; paying less upfront increases it.
RAD retention: why a RAD isn’t refunded in full
A RAD isn’t automatically refunded dollar for dollar. For residents who first enter aged care on or after 1 November 2025, providers are required to deduct a retention amount from the deposit. This is calculated at a rate of 2% per annum, applied to the daily balance, with deductions taken regularly rather than all at once.
Retention stops after 5 years, so the maximum kept is around 10% of the deposit, no matter how long someone remains in care. This rule doesn’t apply to residents who entered care before 1 November 2025 under the earlier arrangements.
You can also ask your provider to draw down other costs from your lump sum, such as daily payments or other aged care fees, which will reduce the balance over time. Retention deductions work differently from these: your provider can ask you to top up your lump sum if other deductions reduce it, but they cannot ask you to top it up for amounts taken as RAD retention.
Handing over a lump sum of several hundred thousand dollars is the part of the decision families find hardest, and it’s a reasonable thing to want certainty about. Lump sums paid for accommodation are protected by the Australian Government’s Accommodation Payment Guarantee Scheme, which repays your balance if an approved provider becomes insolvent and cannot refund it itself. That protection covers money paid as a refundable deposit for a room, and it does not extend to any other lump sum a provider might hold on your behalf, so it’s worth being clear about what any money you hand over is actually for.
There’s a related protection worth knowing: a provider cannot ask you to pay your ongoing fees annually or as an upfront lump sum, and cannot collect fees more than one month in advance. If a provider is holding money beyond that, it counts as a loan rather than an accommodation payment, sits outside the guarantee scheme, and is treated as an assessable financial asset in your means assessment. Take independent legal and financial advice before agreeing to anything structured that way.
Why the choice matters beyond the room price
The decision between a RAD, DAP or combination affects more than just how you pay for your room.
A refundable lump sum, whether paid by you or contributed by family, counts as an asset in your means assessment. This means it’s taken into account when working out your means-tested contribution and your accommodation contribution (we’ve gone into how the means-tested contribution is calculated in a separate guide). This is different from your Age Pension assets test: for that separate test, a refundable lump sum is exempt, but for your aged care means assessment, it counts.
If you’re part of a couple, the means assessment looks at half your combined income and assets irrespective of whose name they’re held in, so a lump sum paid by one partner can affect the other partner’s fees too, particularly if they’re also in or approaching aged care.
Because of this interaction between your accommodation payment method and your other fees, both My Aged Care and the Department of Health, Disability and Ageing recommend seeking independent financial advice before deciding, since it can affect your pension, your other fees, and what’s available to your family later.
Low-means support with accommodation costs
If your means assessment finds that the amount worked out from your income and assets combined sits below the low-means threshold, the government helps with your accommodation costs, and you may pay a RAC or DAC instead of the full RAD or DAP.
Choosing, and later changing, your payment method
You can’t be asked to choose your payment method before you move into an aged care home, which is why a lump sum is never due on the day someone moves in. The decision comes after entry, once your means assessment is finalised.
From that point you can pay part or all of your RAD whenever you choose, and each payment reduces your ongoing daily amount. It also works the other way in practical terms: rather than switching a lump sum back to daily payments, you can ask your provider to draw your daily payments down from the lump sum you’ve already paid, which leaves nothing further to pay out of pocket each month.
When a resident leaves the home
Any RAD or RAC balance is refunded once a resident leaves the home, less any deductions that have been agreed or required, such as RAD retention. This applies whether someone moves to a different type of care or no longer resides in the home. Daily payments, by contrast, aren’t refunded, since they work like ongoing rent rather than a deposit.
How this fits with your other aged care costs
Your room is one of three core costs, alongside an optional Higher Everyday Living Fee if you choose additional services. Every resident also pays the Basic Daily Fee, and many pay a means-tested contribution on top of that. We’ve covered how all of these fit together in our full guide to aged care costs, and gone deeper on the means-tested contribution, including how the family home is treated, in our guide to the means-tested fee.
Accommodation costs for each of our homes are listed on our fees and charges page. For the numbers specific to your family’s situation, an independent financial adviser is the person to see.
Our caring Admissions team is here to walk alongside you and your family every step of the way. If you have any questions, you can call our Western Australian team on 0419 856 664 or our Victorian team on 0468 718 856, or submit an online enquiry.
Frequently asked questions
Is a RAD or a DAP better?
There’s no single right answer. It depends on your family’s financial circumstances, including how much capital you have access to, how it might affect your pension and other fees, and what you’d prefer to preserve for later. This is exactly the kind of decision independent financial advice is designed to help with.
Can I change from a DAP to a RAD later?
Yes. Once your means assessment is finalised, you’re free to switch some or all of your daily payments over to a lump sum whenever you like, and your ongoing payments will drop accordingly.
Does the RAD earn interest while I’m in care?
A RAD itself doesn’t earn interest for you in the way a bank deposit might. If you choose a DAP instead of a RAD, the daily amount you pay is effectively the cost of not paying the lump sum, calculated using the MPIR.
What happens to my RAD if I move to a different aged care home?
Your deposit is refunded, less any deductions, and you’d then agree a new room price and payment method with the new home. Since the refund and the new deposit rarely land on the same day, it’s worth confirming timing with both homes early so the two line up.
Do I have to decide on my own, or can my family help?
Family can certainly be part of the conversation, and can even contribute to a lump sum payment. Just be aware that any amount paid, including by family, counts as your asset for aged care means-testing purposes.