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Australian banks have paid more than $55 million in compensation to borrowers who were overcharged interest because of problems with their mortgage offset accounts, with some banks making manual errors that left customers short-changed, the corporate watchdog has revealed.
The Australian Securities and Investments Commission (ASIC) will on Wednesday warn banks about concerning weaknesses in how the industry manages offset accounts, a popular product that can help people get on top of their debts faster.
Offsets are a type of deposit account linked directly to a home loan: funds held in the offset reduce the balance of the loan, resulting in lower interest payments and allowing faster repayment of debt.
ASIC says Australians had almost $350 billion held in offset accounts at March, and the amount has surged 28 per cent in the past two years amid rising interest rates.
However, an ASIC review of eight banks found a series of problems across more than half the banks, which in some cases resulted in customers paying more interest than they should have.
ASIC said banks had paid more than $55 million in compensation for offset account failures in the two years to August 2025, and banks also received a large number of complaints about offset accounts.
It did not identify which banks had paid compensation for overcharging interest, but the banks covered in the review were ANZ Bank, Commonwealth Bank, Westpac, Macquarie, ING, HSBC, Credit Union Australia, and AMP Bank.
It said five of the eight banks it reviewed had launched offset account-related remediation programs during or after its review, and banks continued to pay compensation to “hundreds of customers for offset account failures since the review period, with more expected from remediation programs that are under way.”
ASIC chair Sarah Court said that in some cases problems had gone unnoticed until the regulator started asking questions, as she underlined the cost to customers from offsets that are not working properly.
“Some banks are not getting the basics right. Customers should not have to discover their offset account has not been working as promised,” Court said.
“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,” Court said.
ASIC’s report was based on data from 204,000 loans settled in 2025. It said manual errors by staff accounted for 86 per cent of all offset failures reported by the banks, but banks had insufficient controls to detect and prevent such errors.
In one case noted by ASIC, a failure to properly link an offset account to a loan resulted in a customer paying more than $3500 in extra interest in just over a month.
Chief executive of the Australian Banking Association Simon Birmingham said banks took problems identified “very seriously,” and the banks in the report had compensated customers and taken steps to strengthen their offset account processes.
“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,” Birmingham 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.”
The individual banks either referred requests for comment to their association or declined to comment.
Treasurer Jim Chalmers commended ASIC for its report and said the government had increased funding for regulators so they could “hold the banks to account and ultimately save Australians money.”
“Australians deserve better from their banks,” Chalmers said. “People are under enough pressure without being shortchanged on their offset accounts. Every dollar matters, and so the last thing Australians need is to pay more interest than was promised.”
ASIC said that while offsets are marketed as a way to reduce customers’ interest bills, its review found some banks struggled to readily identify customer offset requests, many banks did not identify offset account failures, and some were slow to fix problems or did not compensate customers.
ASIC said customers should make sure their offset account was linked to the correct home loan and was getting the benefit of saving interest.
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