Some Australian mortgage holders have been paying millions of dollars extra on interest payments because banks failed to manage offset accounts properly, the financial watchdog has found.
Offset accounts are marketed to borrowers as a way to chip away at their mortgages and cut down on interest payments.
With almost $350 billion held in offset accounts as of March, a 28 per cent increase on two years earlier, consumers are eager to take banks up on the offer.
But in a report released on Wednesday, the Australian Securities and Investments Commission found lenders were all too often failing to deliver on their promise.
Between September 2023 and August 2025, banks paid more than $55 million in customer compensation for offset account failures.
The report found banks could not readily identify whether a customer had requested an offset account in the first place and in some cases failed to link offset accounts to a customer’s home loan.
In one case, a customer paid more than $3500 in higher interest payments in one month because their offset account was not linked to their loan, as had been requested.
Because of bank failures to properly record and link offset accounts, loan repayments stayed the same and customers paid more interest and took longer to pay down their loans, said ASIC chair Sarah Court.
“Customers are doubly hit – not only losing promised interest savings but also the opportunity to use that money elsewhere,” she said.
“Some banks are not getting the basics right. Customers should not have to discover their offset account has not been working as promised.
“In some cases, offset failures went undetected until ASIC started asking questions. That should concern every bank offering offset accounts.”
The review examined how eight banks – including Commonwealth Bank, Westpac and ANZ – set up, linked and managed mortgage offset accounts over the two years to August 31, 2025.
ASIC reviewed data from 204,000 unique home loans in the process and identified issues in hundreds of cases.
It found that banks were inconsistent in detecting offset account failures, did not provide customers with visibility of information, and failed to compensate customers or were slow to fix issues.
But in more than 99 per cent of cases, banks were found to have managed offset accounts correctly, said Australian Banking Association chief executive Simon Birmingham.
“As the report states, banks have already taken action to compensate the small number of customers where those banks identified errors, often manual errors,” he 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.”
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