One of the first big decisions families face when a loved one needs to move into residential aged care is how to pay for the room itself. It comes down to two options… or a mix of the two: the RAD and the DAP. It’s easy for the acronyms to get confusing at a time when you’re already juggling a lot, so what does each one actually mean and how do they work?
What is a RAD?
A RAD (Refundable Accommodation Deposit) is a lump sum payment made to the facility for the room. The facility can use that money however it likes eg paying down debt, funding renovations, investing in the business etc. The important part is that it isn’t a fee. It’s refundable. When your loved one leaves the facility, whether that’s moving elsewhere or passing away, the RAD comes back to the estate.
There is one recent change worth knowing about. For anyone who has entered aged care from 1 November 2025 onwards, facilities are now allowed to retain a small portion of the RAD each year, calculated at 2% per annum, capped at five years. So over the maximum period, that’s up to 10% of the RAD that isn’t returned. Anyone who paid a RAD before that date isn’t affected by this change; their RAD remains fully refundable under the old rules.
What is a DAP?
If you’d rather not use a large lump sum, the facility is generally happy to take a DAP (Daily Accommodation Payment) instead. Think of it as the ongoing cost of not paying the RAD. It’s calculated using an interest rate set by the government, known as the Maximum Permissible Interest Rate (MPIR), applied to the unpaid portion of the room price. That amount is charged daily but usually billed monthly.
As an example, say the agreed room price is $550,000. You could pay that as a lump sum RAD, or, if you’d rather keep that capital available, you can pay a DAP instead, which is worked out as the room price multiplied by the MPIR, divided by 365. The MPIR is reviewed by the government every quarter and currently sits at 8.43%. (July 2026) It moves up and down depending on economic conditions, so the DAP amount for someone entering care today may differ from someone entering a few months from now. The MPIR that applies to you is locked in when you enter care so later changes to the MPIR won’t affect your rate. That said, if you enter care from November 2025 onwards and pay a DAP, the amount you’re charged is still indexed twice a year (on 20 March and 20 September) to keep pace with rising accommodation costs.
Or a combination of both
You don’t have to choose one or the other entirely. Many families pay part RAD and part DAP so for example, paying $300,000 as a lump sum and covering the remaining $250,000 through daily payments. This can be a useful way to balance keeping some capital available against reducing the ongoing cash flow commitment.
So which is right for your family?
There’s no single right answer for everyone but seeing all your options laid out in black and white will help you make an informed choice. Which is ‘right’ depends on what other assets and cash flow your loved one has, how it works with their pension, super and tax etc, and what the family’s plans are for the property and estate down the track. Paying the full RAD might suit someone who wants certainty and to preserve the full value for the estate. Paying the DAP might suit someone who would rather keep their capital invested elsewhere. A combination might strike the right balance.
This is exactly the kind of decision where it pays to sit down and look at the full picture rather than guessing. If you’d like to talk through what makes sense for your family’s situation, please get in touch.
