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What is the difference between an offset sub-account and an offset account?

Both banks and non-bank lenders can provide offset facilities. Banks provide offset accounts and non-bank lenders provide offset sub-accounts. Both offset accounts and offset sub-accounts reduce the interest you pay on your loan, however there are some key differences to be aware of:

  • Structure - an offset account is a separate bank account linked to the home loan, whereas a sub-account forms part of the loan itself. Both hold funds that are accessible via debit cards, BPAY and digital wallets.
  • Limits - because an offset sub-account forms part of the loan itself, the balance of funds within the account cannot exceed your home loan balance. There is no such limit on an offset account, though banks may put their own limit on the portion of funds able to be used as offset.
  • Account closure - because an offset sub-account forms part of the loan itself, the sub-account will be closed when the loan is closed. If you intend to keep the offset amount as cash when you close the loan, you will need to move it to a different account prior to your lender providing your final payout figure. This is not the same for bank offset accounts - because they are a separate bank account, they can continue to exist once your loan account is closed. 
  • The Government’s Financial Claims Scheme (FCS) deposit guarantee - funds in an offset account are covered by the FCS guarantee, however funds in an offset sub-account are not covered by the FCS guarantee because the sub-account forms part of your loan rather than being a separate deposit account. It’s worth noting that if a non-bank lender closes down, your loan may be transferred to another party, and you would continue making repayments to that new party. The balance in your offset sub-account is not lost and should continue to reduce, or be set off against, your loan balance.

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