RAD vs DAP: Accommodation Pricing Explained

When a loved one moves into residential aged care, one of the biggest financial decisions your family will face is how to pay for their accommodation. In Australia, there are two main payment options: a Refundable Accommodation Deposit (RAD) and a Daily Accommodation Payment (DAP). You can also choose a combination of both. This guide explains how each works so you can make an informed choice.

What Is a RAD?

A Refundable Accommodation Deposit (RAD) is a lump sum payment made when entering an aged care home. Think of it like a bond or deposit -- the key feature is that it is fully refundable when the resident leaves the facility, regardless of the reason.

Key points about RADs:

• The full amount must be refunded within 14 days of the resident leaving the facility.
• RAD amounts are set by the facility and published on My Aged Care. They can vary significantly -- from around $200,000 to over $2,000,000 for premium rooms.
• The RAD is guaranteed by the Australian Government, so even if the facility closes or changes ownership, your deposit is protected.
• While the RAD is held by the facility, it is not earning interest for you. The facility uses it to fund their operations.

What Is a DAP?

A Daily Accommodation Payment (DAP) is a rental-style payment made on a daily basis instead of a lump sum. The DAP amount is calculated from the equivalent RAD price using the Maximum Permissible Interest Rate (MPIR), which is set by the government and updated quarterly.

The formula is straightforward:

For example, if the RAD is $500,000 and the MPIR is 8.36%, the daily payment would be approximately $114.52 per day, or roughly $41,800 per year.

Unlike the RAD, DAP payments are not refundable. They are a genuine cost of care. However, they allow families to preserve capital and maintain liquidity.

Combination Payments

You don't have to choose purely one or the other. Many families opt for a combination of a partial RAD and a partial DAP. You can pay any portion as a lump sum, and the remaining balance is converted to a daily payment.

For example, on a $500,000 RAD, you might choose to pay $300,000 as a lump sum deposit and then pay a DAP on the remaining $200,000. The daily payment would then be calculated on the $200,000 balance only.

This flexibility allows families to balance capital preservation with ongoing costs in a way that suits their financial situation.

Current MPIR Rate

The Maximum Permissible Interest Rate (MPIR) is reviewed and updated quarterly by the Department of Health and Aged Care. It is based on the maximum interest rate that facilities can charge when converting a RAD to a DAP.

The MPIR changes over time in line with broader interest rate movements. When the MPIR rises, DAP payments become more expensive relative to paying a RAD upfront, and vice versa. You can find the current MPIR on the Department of Health and Aged Care website.

It is worth checking the current rate before making a decision, as even small changes can have a meaningful impact on ongoing DAP costs over several years.

How to Compare Pricing

When comparing accommodation costs between facilities, keep these tips in mind:

• Compare RADs directly. The published RAD amount is the most straightforward way to compare accommodation pricing between homes.
• Consider what's included. A higher RAD might come with a larger room, better facilities, or included extra services. Ask what the accommodation price covers.
• Factor in location. Like property prices, RADs tend to be higher in metropolitan areas and lower in regional or rural locations.
• Ask about room types. Most facilities offer a range of rooms at different price points. The published RAD is usually for the most common room type.

CareRank shows published RAD prices for every facility, making it easy to compare accommodation costs alongside quality ratings and other factors.

Financial Considerations

Choosing between RAD and DAP is a significant financial decision. Here are some factors to weigh:

• Opportunity cost. If you pay a RAD, that capital is tied up and not earning returns elsewhere. Compare the MPIR to what you could earn on investments to see which option costs more in real terms.
• Centrelink implications. A RAD is exempt from the Age Pension assets test for the resident (but not necessarily for a partner remaining at home). DAP payments don't affect the assets test. This can make a real difference to pension entitlements.
• Home sale timing. If the family home needs to be sold to fund a RAD, families have up to 12 months before the home is counted in the means test. A combination payment can bridge this period.
• Length of stay. The average length of stay in residential aged care is around 2.5 to 3 years. A longer stay means more cumulative DAP payments. A shorter stay means the RAD is returned sooner.
• Get professional advice. The interaction between accommodation payments, pension entitlements, tax, and estate planning can be complex. A financial adviser specialising in aged care can help you optimise the decision for your family's circumstances.

Further Reading

• Full breakdown of aged care costs
• How to choose an aged care home
• Browse aged care facilities