Australian borrowers have been overcharged millions of dollars in interest payments because of major failings in how banks manage mortgage offset accounts, it has been discovered.

About $55 million in compensation was paid back to customers in the two years to August 2025 after the corporate watchdog looked into the offset practices of eight lenders that make up more than 70 per of the country’s $2.5 trillion home loan market.

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The Australian Securities and Investments Commission (ASIC) found hundreds of customers had saved money in dedicated offset accounts that were not properly linked to their mortgages, meaning they were not getting any benefit.

Shortcomings were found “in how all banks set up, monitored and managed offset accounts, resulting in some customers missing out on promised savings”.

“In some cases, offset failures went undetected until ASIC started asking questions,” ASIC chair Sarah Court said on Wednesday.

“That should concern every bank offering offset accounts.”

What is an offset account?

An offset is linked to your home loan and often acts like an every day bank account.

Salary and savings deposited into the account and the balance is offset against what someone owes on their mortgage.

For example, someone with a home loan of $600,000 and $50,000 in their offset would only be charged interest on a loan balance of $550,000 ($600,000 less $50,000).

How many Australians have an offset?

Close to 3.3 million Australian households have a mortgage, and more than half have an offset — where about $349.1 billion is held.

Offset accounts are marketed as a simple option for saving on mortgage interest over the life of a home loan, but Court said some banks were failing to deliver on that promise.

“When offset accounts don’t operate correctly, the harm can be hidden,” Court said.

“Loan repayments stay the same, while customers unknowingly pay more interest and take longer to repay their loan.

“Customers are doubly hit – not only losing promised interest savings but also the opportunity to use that money elsewhere.”

Analysis by Canstar found Australians collectively save more than $60m daily by having cash in their offset.

ASIC chair Sarah Court. Credit: 7NEWS

Mortgage offset failures

ASIC looked into how banks set up, linked, managed and responded to failures with mortgage offset accounts, but did not assess how banks calculated interest.

The watchdog said there was four key concerns picked up during their review of more than 204,000 unique home loans settled with AMP Bank, ANZ, Commonwealth Bank, Credit Union Australia (Great Southern Bank), HSBC, ING, Macquarie and Westpac.

• Banks struggled to readily identify customer offset account requests;
• Banks’ detection of offset account failures was inconsistent;
• Banks failed to compensate customers and were slow to fix issues;
• Customers lacked visibility of information on offset accounts.

Customer slugged $3500 in extra interest

One customer paid more than $3500 in additional interest in little more than one month when their offset account was not linked properly.

The alarm was only raised when the customer lodged a complaint.

“One bank identified hundreds of cases where offset accounts had not been created or linked. This means that customers may have paid more interest than they should have,” ASIC’s report said.

While customers have been paid back $55 million, that figure is expected to grow as “banks continue remediation”.

“Offset accounts are important to customers and often come at a cost,” Court said.

“Banks need stronger controls to ensure offset accounts are set up and managed correctly, and that customers receive the savings they have been promised.”

ASIC said it will continue to monitor the issue and “take further regulatory action” if needed.

What should customers do now and how to work out your rate?

The advice to customers is to check that your offset account has been set up and linked to the correct loan.

It is also important to ensure you are receiving the right benefit in terms of interest savings.

“ASIC’s report is hugely concerning. Customers trust their bank to apply interest charges correctly on what is typically their biggest monthly expense,” Canstar data insights director Sally Tindall said.

“Log on to your banking app or your online portal and check the account is clearly listed as linked.

“But don’t stop there — do some quick maths to make sure the interest you’re being charged is on the amount you actually owe, factoring in the offset balance.

“Customers shouldn’t have to go this far, but what the ASIC report highlights is that it’s worth doing this double check. 

“If the maths doesn’t stack up, reach out to your bank and present them with your figures.”

Banks take findings ‘seriously’

Australian Banking Association chief executive Simon Birmingham said banks have taken the findings “very seriously” and are taking steps to improve practices.

“Offset accounts can be an effective way for mortgage holders to save on interest and in more than 99 per cent of cases banks were found to manage them correctly,” he said.

“As the report states, banks have already taken action to compensate the small number of customers where those banks identified errors, often manual errors. 

“Banks take any identified issues very seriously, with these banks already compensating their customers and taking steps to further strengthen their offset account practices.”