Offset Drama Shows Banks Still Have a Dark Side

Isn’t it funny how you rarely read about banks accidentally giving their customers too much money but massive rip-offs of their own customers seem to be repeated all the time?

We might have had a break for a while since the Banking Royal Commission stopped the banks from charging fees to dead people but the fact that banks have had to pay $55 million so far for ripping off their customers with offset accounts should really ring some alarm bells.

Offset accounts are an absolutely huge market in Australia with a staggering $349.1 billion held in accounts so the fact that some banks have been short-changing their customers is very alarming.

The consequences of offset mistakes can be devastating—potentially customers can end up paying thousands of dollars in extra interest and also face having their housing loans extended by many years by these mistakes.

Onus on Customers to Find Errors

Given that the Australian Securities and Investments Commission (ASIC) review of 204,000 loans settled between March and August last year has raised such a raft of issues, it is now up to us all as consumers to ensure that the banks are not acting like bastards again with our accounts.

There were eight banks involved in the review: AMP Bank, ANZ, CBA, CUA (Great Southern Bank), HSBC, ING, Macquarie, and Westpac.

All have been marketing offset accounts to customers as an easy way to save on mortgage interest over the life of a home loan but it turns out that some of these banks are failing to deliver what they promise.

This is a serious issue because offset customers pay extra for their accounts – either in fees or through higher interest rates or both.

$55m Already Repaid

The extent of this problem is shown by the fact that banks repaid more than $55m in customer compensation for offset account failures between between September 1, 2023 and August 31, 2025.

That points to many more payments still to be made and many that no doubt have yet to be discovered so the pressure now falls back onto customers to make sure they are getting what they paid for.

With the ASIC report saying that almost 3.3 million Australian households have a home loan and more than half of them having an offset account, this is a significant issue.

Canstar estimated that based on the report, at least 1.8 million mortgages may need to be checked to ensure the offset is linked correctly.

The ASIC report was clear that the main problem was unlinked accounts, where the bank opens the account or leaves money in it but fails to tie it to the home line.

This was the main driver of the financial losses suffered by bank customers.

One of Many Examples

One of the examples cited in the ASIC report showed that a couple, James and Mia, paid $3000 in additional interest in a year after their bank failed to correctly link an offset account containing $50,000 to their $750,000 home loan.

If that mistake had gone unnoticed for the 30-year life of the loan, the couple would have paid $230,000 in extra interest and taken four more years to pay off the loan.

The report showed other issues including offset accounts being linked to the wrong loan, for a request for an offset account to be accepted and paid for but the account remained unopened, delays in setting up offset accounts sometimes by many months and accounts being linked but the interest not being calculated correctly.

In some cases, accounts were linked in the bank system but problems within that system meant that interest reductions were not applied to the balance.

Difficult to Detect

The big problem that ASIC identified was that mistakes involving offset accounts can be really difficult to detect.

Monthly repayments on a loan stay the same, which means errors can remain hidden for years, and customers do not always see important offset account details in their bank’s mobile app or online banking.

“When customers cannot easily check whether an offset account is linked or saving interest, they may be unable to identify problems and, therefore, unable to raise them with their bank,” the report said.

“This matters even more when banks struggle to find offset account failures themselves. Without clear, accessible information, customers can overpay interest without realising.”

While the ASIC report did say that at least one bank has improved the way it shows offset details on its mobile app and online banking website, the need for radical changes remains unmet in many cases, with old manual approaches still being used.

Start with Net Balance

That means it is up to customers to check basic details with their bank—namely whether the bank created the offset account, whether the account is linked to the correct home loan, and whether interest calculations are accurate in how they are based on the reduced balance of the loan after the offset amount is taken into account.

Checking this interest amount can be quite difficult but you need to start by working out the net balance—the amount you owe on your loan, minus the money in your offset account.

If the offset account balance varies over the month, make an estimate.

Then work out your daily interest rate—the overall mortgage rate divided by the number of days in the year.

Multiply that by your net balance.

This will be the daily amount you should be charged in interest, which can then be multiplied by the monthly or other period that applies to your loan to check against the amount charged.

Far from Ideal

In an ideal world, none of this checking would be needed.

However, experience has shown us a few things about banks.

They can all be trouble at times and usually their mistakes send money in one direction—their own.

Unfortunately keeping them honest in the short term relies on customers spotting mistakes and then not resting until they are rectified.

Regulation usually catches up in the end, but it is much better to be vigilant early rather than waiting patiently in line for compensation down the track.