Offset accounts are heralded as a straightforward means to lower home loan interest, yet a recent report by the Australian Securities and Investments Commission (ASIC) reveals that some banks are falling short of this promise.
ASIC, the watchdog for Australia’s financial services and consumer credit, examined the offset practices of eight major banks. Collectively, these banks account for over 70% of Australia’s substantial home loan market, valued at around $2.5 trillion. Explore more about this topic here.
While each institution’s practices differed, the report highlighted significant deficiencies in how these banks — including AMP, ANZ, CommBank, Great Southern Bank, HSBC Australia, ING, Macquarie Bank, and Westpac — set up, monitored, and administered offset accounts.
Alarmingly, the study uncovered instances where customers ended up paying more than $17,000 in unnecessary interest due to unclear communication from banks about the need to re-link offset accounts following refinancing.
In a separate case, one customer incurred over $3,500 in extra interest charges in just over a month after their account was incorrectly de-linked.
Reports to ASIC between 1 September 2023 and 31 August 2025 showed banks paid more than $55 million in customer compensation for offset account failures.
It expects compensation to continue as banks further analyse offset account operations.
ASIC chair Sarah Court said that “when offset accounts don’t operate correctly, the harm can be hidden”.
“Loan repayments stay the same, while customers unknowingly pay more interest and take longer to repay their loan.”
What is an offset account?
Hue Hwa Au Yong, a senior lecturer in banking and finance at Monash University, said offset accounts are “simple to understand but difficult for customers to verify”.
Like an everyday transaction account, offset accounts can be used to deposit and withdraw money.
However, the amount of money in an offset account also reduces the outstanding amount owed on a home loan, which is used to calculate interest.
If a person has $50,000 in their offset account and a $750,000 loan, they will only be charged interest on $700,000.
“So, the issue really is not the product itself, but the system behind it,” Yong told SBS News.
“As a bank customer, we can see how much money is in our offset account. But as a borrower, we can’t easily verify whether the banking systems are correctly applying it when calculating interest, [which] … is calculated daily using a quite complex formula and system. “
Australian Banking Association CEO Simon Birmingham told SBS News that 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 banks had “already taken action to compensate the small number of customers where those banks identified errors, often manual errors”.
Offset accounts in Australia
As of March this year, Australians had almost $350 billion in offset accounts, a 28 per cent increase over the past two years, according to ASIC.
Kathy Tannous — a professor in economics at Western Sydney University’s Business School — said offset accounts are becoming increasingly popular.
“Around 40 per cent of all mortgage holders use an offset account according to recent research,” Tannous told SBS News.
“Part of the appeal is twofold in Australia: our level of housing ownership but also the size of our mortgages — the amount we have to borrow relative to our income in order to buy what we call the ‘Australian dream’ of owning a property”.
However, offset accounts are also associated with higher interest rates, additional account fees or a combination of both.
Offset accounts are not available in the United States due to tax regulations. They are an option in New Zealand and the United Kingdom, but are less common than in Australia.
Customers ‘doubly hit’
According to ASIC’s report, there are several key reasons why banks have “insufficient oversight and inadequate responses” to customers regarding offset accounts.
The regulator found some banks “struggled” to readily identify if or when customers had requested an offset account.
It also alleged banks were unaware they were failing to deliver on promises for offset accounts.
It claims some financial institutions were slow to fix issues, compensate customers and didn’t provide easily accessible online information.
Court said that, when offset account failures occur, “customers are doubly hit” — not only losing promised interest savings but also the opportunity to use that money elsewhere.
The report also provides examples of “more positive action by banks”, including improvements to offset practices before and during the review.
Some banks have committed to make changes after ASIC’s reporting, according to the regulator.
Calls for change?
Tannous believes in Australia, some people rely on banks, “almost like you’re relying on your doctor to treat you medically”.
“You rely on banks to treat you financially. That they will provide you with information in a way that you can understand it and make a decision.”
She described ASIC’s report as “most concerning” but acknowledged the regulator’s findings were limited to a two-year period.
ASIC has called for greater transparency from banks to amend what it has described as weaknesses in offset account practices. That includes information about offset accounts on bank websites and mobile apps.
Yong said the onus should be on banks, not customers, to detect errors in offset accounts but also encouraged Australians to be “proactive” and contact their bank if they had concerns.
Birmingham also said “banks take any identified issues very seriously, with these banks already compensating their customers and taking steps to further strengthen their offset account practices”.