Millions of Australians use mortgage offset accounts to reduce interest costs on their home loans, but the corporate regulator says some banks are not delivering the savings as promised.
Australian banks have paid more than $55 million in compensation in just two years, after failures with offset accounts left customers paying more interest than they should have, a review by ASIC found.
The watchdog examined eight banks representing more than 70 per cent of Australia’s home loan market and found weaknesses across all of them in how offset accounts were set up, monitored and managed.
Offset accounts are linked to home loans, often for a package fee charged by the bank. (ABC News: Tony Ibrahim)
ASIC chair Sarah Court said the problems could be particularly difficult for borrowers to detect because mortgage repayments may stay the same, masking the fact they are paying more interest than they should.
“When offset accounts don’t operate correctly, the harm can be hidden,” Ms Court said.
“Loan repayments stay the same, while customers unknowingly pay more interest and take longer to repay their loan.”
Ms Court said, in some cases, the failures went undetected by the banks until ASIC started asking questions.
“That should concern every bank offering offset accounts.”
Sarah Court says the harm of offset account failures can be hidden from customers. (AAP: Diego Fedele)
Reports made to ASIC between September 1, 2023 and August 31, 2025 show AMP, ANZ, CBA, Credit Union Australia, HSBC, ING, Macquarie and Westpac collectively paid more than $55 million in compensation for offset-account failures.
What is a mortgage offset account?
An offset account is a separate transaction or savings account linked to an eligible home loan.
The money remains available for the customer to spend, just like a normal transaction account, but the balance reduces the amount of the mortgage on which the bank calculates interest.
For example, someone with a $500,000 mortgage and $50,000 in a 100 per cent offset account should generally be charged interest on $450,000, rather than the full loan balance.
That can produce substantial savings over the life of a mortgage, provided the account is correctly linked and operating as intended.
Many lenders charge a premium for an offset through additional fees and, in some cases, higher interest rates.
Offset accounts are increasingly popular as Australians face higher interest rates. (Adobe Stock)
Brooke thought her savings were reducing her mortgage interest
Brisbane-based home owner Brooke, who asked for her surname to be withheld for privacy reasons, and her husband thought they were doing exactly what borrowers are encouraged to do — putting their savings into an offset account to reduce the interest on their first home loan.
They had taken out the mortgage with one of Australia’s big four banks and, for about two years, deposited their savings into what they believed was an account offsetting their mortgage.
It was only when they decided to refinance with another bank and went into a branch to close their accounts that they discovered the savings had not been reducing their interest as expected.
Brooke’s bank offered compensation but she had no way to check the calculations. (ABC News: Lucas Hill)
Their mortgage broker, Cara Haines, said there had been two problems.
The mortgage had been split into two loan accounts, allowing part of the loan to be fixed after settlement.
Ms Haines said the offset was initially linked to the wrong loan account, and the link then fell off when part of the loan was fixed, with the bank not providing any prior notice or information to the customer.
The discovery came just before Christmas, while Brooke and her husband were in the middle of settling their new loan.
“I had a cold chill through my heart,” Brooke said.
“We had no idea how much money we were actually out of pocket.”
After an investigation, the bank offered the couple more than $5,000 in compensation.
But Brooke said it was difficult to independently determine whether that figure fully reflected their loss.
“Why would I trust the bank at that point?” she said.
“For us, though, it was such a stressful time that we did just take the money and we needed to move on.”
The experience prompted Ms Haines to review other customers she had with the same bank.
Cara Haines discovered errors with several clients’ mortgage offsets. (ABC News: Lucas Hill)
She said the review found another customer in a similar position, who was ultimately compensated more than $10,000.
Banks struggle to find their own failures
ASIC’s review identified four broad weaknesses, and provided stark examples of failures — which, in some cases, had gone unnoticed until the regulator started asking questions.
Should I use an offset account, credit card combo?
First, the regulator said many banks struggled to establish whether customers had requested an offset account in the first place.
Seven of the eight banks relied on manual processing for some requests to set up or re-link offsets, particularly when borrowers refinanced or changed their loan.
At one bank, a key form recording customers’ requests was not digitised. The bank estimated that establishing when offsets had been requested across its customers would have required more than 20 employees working for four weeks.
Second, ASIC found banks were not reliably detecting when things went wrong.
Banks had failed to identify 77 per cent of the reported offset-account failures before ASIC requested the data, although the regulator noted one bank accounted for most of those cases.
Human error was the dominant cause, with manual staff errors accounting for 86 per cent of the failures reported by banks.
In one striking example, a bank discovered in September 2025 that a report designed to flag potential offset-linking failures had not been reviewed for almost five years.
ASIC found many banks struggle to establish whether borrowers have requested an offset account. (ABC News: Daniel Irvine)
ASIC said even when banks knew there was a potential problem, customers were not always compensated or problems quickly fixed.
ASIC also found one bank had identified a process flaw that could delay an offset being linked by up to 21 days, but did not fully fix the process for about two years.
Fourth, the regulator found customers were not always clearly told that changes to their mortgage could stop their offset from working.
For example, some banks did not adequately explain that a loan change could de-link an offset, or that customers might need to make a separate request to have it linked again.
Complaint records showed many borrowers did not realise they needed to take that additional step.
ASIC said it was not enough for banks to rely on information buried in terms and conditions, particularly when customers could continue paying extra interest without knowing anything was wrong.
Employed people in distress amid rate rises
The CEO of the Consumer Action Law Centre, Stephanie Tonkin, said the mortgage offset account issue went to the heart of why customers had less trust in the financial services sector.
“They need to invest far more in their systems and be more transparent — especially important where banking products are complex like offset accounts and consumers have limited visibility over whether they’re set up correctly.”
The Australian Banking Association’s CEO, Simon Birmingham, said customers should “take confidence” that the vast majority of mortgage offset accounts were working as intended.
“The good news is that offset accounts are working for well over 99 per cent of Australians, saving them thousands of dollars on their mortgages,” he said.
Mr Birmingham said banks were “resolving those issues, compensating customers, and improving systems” where problems had been identified.
While acknowledging there had been “manual failures” and isolated mistakes, he said the report showed banks were identifying issues and working with ASIC to improve their systems.
“Banks aspire for every system to work perfectly 100 per cent of the time,” Mr Birmingham said.
The ABC understands the $55 million in remediation was paid to hundreds of thousands of borrowers.
Offset accounts are increasingly popular
The potential impact of these failures is growing as offset accounts become an increasingly common feature of Australian mortgages.
Reserve Bank data shows 55 per cent of housing loan facilities now have an offset account as of March 2026.
Canstar data insights director Sally Tindall said higher interest rates had given borrowers an even greater incentive to make their savings work against their mortgage.
“People that have spare dollars are funnelling it into their offset accounts in order to reduce the amount of interest that they pay to the bank,” she said.
Mortgages burdening households at record levels
It’s not a new problem — ASIC has dealt with similar offset-account failures before, with banks previously forced to refund customers who were overcharged interest.
In 2017, Bankwest refunded about 10,800 customers more than $4.9 million after it failed to properly link some offset accounts to home loans.
That same year, NAB refunded $1.7 million to 966 home-loan customers after it found some offset accounts had not been properly linked to broker-originated loans.
And in 2022, the Federal Court ordered ANZ to pay a $25 million penalty after the bank failed to provide some customers with promised benefits attached to offset transaction accounts and its former Breakfree package, including fee waivers and interest-rate discounts.
In response to ASIC’s latest review, Treasurer Jim Chalmers said Australians were already under financial pressure and should not be paying more interest than they had been promised.
“Every dollar matters, and so the last thing Australians need is to pay more interest than was promised,” he said.
ASIC said a number of banks have already begun remediation following its review and compensation payments are continuing.
The regulator said it will provide individual feedback to the banks, monitor how the deficiencies are addressed and consider further regulatory action where appropriate.