Offset sub-accounts explained
If you’ve heard the term 'offset sub‑account' but aren’t quite sure what it means, you’re not alone. Here’s a simple breakdown to help you understand how it works – and how it’s different from other offset features in the market.
An offset sub‑account is a feature that may help reduce the interest charged on your home loan, which can help you pay it off sooner.
How does an offset sub‑account work?
An offset sub‑account helps reduce the interest calculated on your home loan. Any money you keep in this account is offset against your loan balance. This means that interest is only charged on the difference.
For example^: If your loan balance is $400,000 and you have $40,000 in your offset sub‑account, you’ll only be charged interest on $360,000. Your scheduled repayments stay the same, but you may reduce the amount of interest you pay over the life of the loan.
Offset account vs offset sub‑account
(in simple terms)
You’ll often see the terms offset account and offset sub‑account used when comparing home loans. They sound similar, but they work differently. At Pepper Money we offer an offset sub-account. Here’s a simple explanation of the difference.
Standard offset account (what many banks offer)
A standard offset account is a separate bank account that sits alongside your home loan.
- It works like an everyday transaction account
- Your balance in that account reduces the interest calculated on your home loan
- It must be a deposit account, which only certain financial institutions can offer
Pepper Money
offset sub-account
(how ours work)
Pepper Money isn’t an ADI – which means we can’t offer traditional deposit accounts. Instead, our offset feature is built inside your home loan as a sub‑account, but it still works to reduce the interest you pay.
At Pepper Money:
- The offset sub account is part of your loan, not a separate bank account
- Money in this sub account reduces the balance we calculate interest on
- Your scheduled repayments stay the same, which can help you pay down your loan faster
- You can still use it much like an everyday account (subject to available funds), including the option of a Visa Debit card.
Think of it like: Home loan with a built‑in offset feature = Money inside reduces interest daily.
Offset sub‑account vs repayment offset account
Some lenders offer repayment offset accounts, where the balance reduces your minimum monthly repayment. Pepper Money does not offer repayment offset accounts.
With Pepper’s offset sub‑account:
- Your scheduled repayments stay the same
- You still benefit from interest savings
- More of your repayment may go towards reducing your loan balance over time
Using your offset sub‑account
You can use your offset sub‑account similarly to an everyday account:
(up to your outstanding loan balance)
by keeping money in the account
If a home loan repayment is missed, funds in your offset sub‑account may be used to cover it (typically within 14 days). If it becomes overdrawn, funds from other loan accounts may be used to clear the balance.
Visa Debit card access
You can choose to add a Visa Debit card to your Pepper Money offset sub‑account. With the card, you can:
per cardholder, per day
(subject to available funds)
for everyday purchases
These limits apply across all cardholders on the account.
Are there any fees?
There are currently no monthly offset sub‑account fees and no card‑issue fees for Pepper Money’s 100% offset sub‑account.
Fees may apply for:
- Replacement cards
- Overseas transactions
- ATM withdrawals
(depending on the ATM provider)
How could an offset sub-account work for you?
If you’re looking for a flexible way to help reduce interest and make the most of your repayments, an offset sub‑account could support your goals. It works quietly in the background by lowering the balance used to calculate interest – all while your repayments stay the same.
We’re here to help
Contributor | Barry Saoud, General Manager, Mortgages and Commercial Lending
Barry joined Pepper Money in July 2021 as General Manager, Mortgages and Commercial Lending. He is responsible for the strategic direction and operating performance across product, credit, and settlements for mortgages, commercial loans, personal loans, and direct sales. Read more.
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^Examples are for Illustrative purposes only. Actual interest savings depend on your interest rate, daily balances, how long funds remain in the sub‑account, and any applicable fees/charges.
Information provided is factual information only, and is not intended to imply any recommendation about any financial product(s) or constitute tax advice. If you require financial or tax advice you should consult a licensed financial or tax adviser. Applications are subject to credit assessment, eligibility criteria and lending limits. Terms, conditions, fees and charges apply.
Product features, eligibility, limits, fees and charges are subject to change - see our current terms and fee schedules. Pepper Money is not an Authorised Deposit‑taking Institution (ADI) and does not offer deposit accounts; the offset sub‑account is part of your loan facility and reduces the balance on which interest is calculated. Electronic transactions using cards and online banking are subject to our electronic banking terms and (where applicable).
© Pepper Money Limited ABN 55 094 317 665; AFSL and Australian Credit Licence 286655 (“Pepper”). Pepper is the servicer of home loans provided by Pepper Finance Corporation Limited ABN 51 094 317 647. Pepper Asset Finance Pty Limited ACN 165 183 317 Australian Credit Licence 458899 is the credit provider for asset finance loans.
Pepper Money Personal Loans is a brand of Pepper Money Limited. Credit is provided by Now Finance Group Pty Ltd, Australian Credit Licence Number 425142 as agent for NF Finco 2 Pty Limited ACN 164 213 030. Personal information for Pepper Money Personal Loans is collected, used and disclosed in accordance with Pepper’s Privacy Policy & the credit provider’s Privacy Policy.
