RAD vs DAP Aged Care: Which Accommodation Payment Is Right?

When your parent enters permanent residential aged care, you face a major financial decision: pay a lump-sum Refundable Accommodation Deposit (RAD), an ongoing Daily Accommodation Payment (DAP), or a combination of both. The difference can mean hundreds of thousands of dollars in opportunity cost over the period of care.

How RAD Works

The RAD is a lump sum paid upfront to the aged care facility. The full amount is refundable when your parent leaves care (including after death), minus deductions.

Typical RAD amounts range from $200,000 to $550,000+ depending on the facility, location, and room type. Secure dementia units often sit at the higher end.

RAD retention (post-November 2025 entries): For permanent entries after 1 November 2025, facilities can retain 2% of the RAD per year, capped at a maximum of 10% over five years. On a $400,000 RAD, that is $8,000 per year deducted from your refund. This is a significant change from the pre-reform rules.

The key advantage of a RAD: you avoid ongoing daily payments. The money effectively acts as an interest-free loan to the facility — it is not "spent" in the way a DAP is.

How DAP Works

The DAP is calculated daily using a formula tied to the Maximum Permissible Interest Rate (MPIR):

DAP = RAD amount × MPIR ÷ 365

The MPIR from 1 July 2026 is 8.43%. That rate is indexed and changes periodically.

For a room with a listed RAD of $400,000:

• DAP = $400,000 × 8.43% ÷ 365 = $92.38 per day
• That is approximately $33,720 per year

Unlike a RAD, DAP payments are not refundable. They are a genuine cost of care.

The Combination Option

You can split the payment. Pay a partial RAD and a reduced DAP on the remainder. For example:

• Pay $200,000 as a partial RAD
• The remaining $200,000 equivalent converts to DAP: $200,000 × 8.43% ÷ 365 = $46.19/day
• Your ongoing daily cost is halved compared to full DAP, and you retain more liquidity

Which Should You Choose?

The decision comes down to three factors:

1. How long will care last? The median stay in Australian residential aged care is approximately 2.5 to 3 years, but dementia residents often stay longer — 4 to 7 years is common because cognitive decline is a slow progression. The longer the stay, the more expensive DAP becomes relative to RAD.

For a 5-year stay at $92.38/day DAP: you pay approximately $168,600 in non-refundable fees. The RAD equivalent ($400,000 minus 10% retention = $360,000 refunded) costs you $40,000 in retention. The RAD is dramatically cheaper.

2. What happens to the family home? If selling the family home to fund the RAD, consider the Centrelink implications. A vacant family home is exempt from the Age Pension assets test for two years after entering care. Selling it converts the proceeds into assessable financial assets, which can reduce or eliminate the pension. However, the portion used to pay a RAD is excluded from the pension assets test.

An accredited aged care financial adviser can model the exact impact. Expect to pay $3,300–$6,600 for a Statement of Advice.

3. Can your parent earn more than the MPIR? If the RAD funds could be invested at a return exceeding 8.43% (post-tax), DAP is mathematically better. In practice, few conservative investment strategies achieve this reliably, especially for retirees. The RAD is typically the safer financial outcome.

Key Numbers for 2026

The Australian Dementia Care Support Toolkit includes a RAD vs DAP comparison calculator, family home impact worksheets, and a step-by-step guide to the residential aged care financial assessment.

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