How Does an Offset Account Work & Was Yours Flagged in the ASIC Investigation?

Fifty thousand dollars sitting in an account that was never actually connected to anything. That is the quiet reality some Australian borrowers woke up to after ASIC turned its attention to mortgage offset accounts. It is also a good reminder of why understanding what an offset account is,  and checking that yours is working as intended, matters more than ever. 

We are Osinski Finance, a family-owned broking team in Rockingham, and our founding director Nathan Osinski has spent years watching this one feature do genuinely brilliant things for our clients. We have also seen it sit there doing nothing at all, because of a broken link nobody thought to check. Here is what the regulator found, and how we would go about making sure your money is pulling its weight. 

Quick Answer

An offset account is an everyday transaction account linked to your home loan. Instead of earning interest on the balance, that balance is deducted from your mortgage before loan interest is calculated, so you are charged interest on a smaller amount. In July 2026, ASIC published a review of offset accounts across eight major lenders and found real problems, with 55% of the issues identified coming down to offset accounts that were opened but never linked to the borrower's loan. If yours has never been checked, and particularly if you have refinanced or come off a fixed rate, it is worth confirming the link is live before you assume the savings are happening.

Offset Accounts Are Now the Norm, Not the Exception 

Offset accounts have moved from a niche extra to a standard expectation. More than one-in-two (55%) home loans now have an offset attached, which means the majority of Australian borrowers have a stake in this story rather than a passing interest. We have written before about why offset accounts are hitting new highs, and the ASIC findings add an important asterisk to that growth.

If that includes you, a recent investigation by the Australian Securities and Investments Commission (ASIC) identifying problems with some offset accounts is not an abstract headline. It is a prompt to check your own setup. Below we cover the mechanics properly, the lenders ASIC reviewed, the main problem areas, and the practical steps that tell you whether your mortgage offset account is earning its keep.

How Does an Offset Account Work?

The everyday account doing a second job

An offset account behaves like any other transaction account. Your salary can land in it, bills and direct debits can come out of it, and you can withdraw at any time without asking permission or waiting on approval. Nothing about the day-to-day feel of it changes.

The difference sits behind the scenes. Rather than paying you interest on the balance, the lender subtracts that balance from what you owe before working out the interest charge on your mortgage. Your savings stop being a separate pot earning a modest return and start acting as a direct reduction on the most expensive debt most people will ever carry.

Interest is calculated daily, not monthly

This is the detail most borrowers miss, and it is the reason the account rewards you for keeping money in it even briefly. Lenders calculate home loan interest daily on the net balance, so every dollar sitting in the offset counts on every day it is there. Parking your pay in the offset for the fortnight before the bills go out is not a rounding error; it genuinely reduces the interest charged across those days.

A worked example on a $600,000 loan

Say you have $600,000 remaining on your mortgage and $50,000 sitting in the offset account. Loan interest charges are calculated on $550,000 rather than $600,000. On an illustrative rate of 6% per annum, that is roughly $3,000 less interest across a full year, from money you have not spent and can still access tomorrow.

Because your loan repayments stay the same, none of that saving disappears. More of each repayment goes towards paying down the principal rather than paying interest, which is how an offset account can help you clear the home loan slate sooner and reduce the total interest you pay across the life of the loan. Running the numbers on your own balance through an offset account calculator is a five-minute exercise that tends to change how people think about where they keep their savings.

What Is an Offset Account Worth Compared to a Savings Account?

Does an offset account earn interest? No, and that is deliberate. The benefit arrives as interest you are not charged rather than interest you are paid, and interest you avoid paying is not treated as taxable income the way savings account earnings are.

For a borrower on a decent marginal tax rate, that distinction can make an offset the stronger option even when a high interest savings account or a term deposit advertises a headline rate that looks competitive. The other advantage is access. Unlike a term deposit, your money is not locked away for a fixed period, so the savings do not come at the cost of flexibility.

What ASIC Found

As a mark of how popular offset home loans have become, homeowners currently have around $349.1 billion sitting in offset accounts, a figure that has risen 28% in the past two years.

That growth is what prompted ASIC to look at how offset accounts are managed across eight lenders: AMP Bank, ANZ, Commonwealth Bank, Westpac, Macquarie Bank, ING Bank, HSBC and Credit Union Australia, now Great Southern Bank. Together, these lenders make up about 70% of the mortgage market.

The review picked up several issues, but the majority, 55% of everything identified, related to unlinked offset accounts. This is where an offset account was opened, but never linked to the borrower's home loan. Affected borrowers paid more in loan interest than they should have, often for years, while looking at a balance they assumed was working for them. A further 22% of issues related to offset accounts not being opened when they should have been.

What Are Banks Doing to Fix the Problem?

Lenders have already paid over $55 million in customer compensation for offset account failures, and ASIC expects more compensation to be paid following its review.

ASIC has also put all lenders on notice to sharpen their systems and warned it will keep monitoring offset accounts. None of which tells you whether your particular account slipped through. 

The Two Moments Your Offset Link Is Most Likely to Break

The ASIC report did not say exactly how many home loans were affected by offset account failures, nor did it name which of the eight lenders had the poorest track record. The Australian Banking Association says problems were identified in "just hundreds" of the loans reviewed. Still, that may be cold comfort if you are one of them.

The good news is that checking is simple, and it matters most if your loan has recently changed. ASIC found problems were most likely to occur at two points:

• When a homeowner refinanced their loan. A new loan structure means new account links, and the offset connection is one of the things that can quietly fail to carry across. If you are weighing up refinancing your home loan, add the offset link to your post-settlement checklist.
• When a borrower comes off a fixed rate. Rolling from a fixed rate home loan onto a variable rate often means the loan account itself changes, and the link to your offset can break in the handover. You may need to contact your bank to reset it.

Neither event announces itself. The balance still shows in your app, the account still works, and nothing looks wrong until you go looking.

How to Check If Your Offset Account Is Working

To check whether your offset account is linked to your loan, start with your banking app or online banking portal:

1. Log in and click through to your home loan account.
2. Look for a section named "Manage", "Offset Accounts", or "Account Details". This should show the account number of your linked account or accounts.
3. Cross-check that number against the transaction account you are actually keeping your savings in. A linked account with the wrong number attached is a surprisingly common outcome.
4. If your app does not show the link clearly, take a look at your latest home loan statement. It may display the account number of your linked offset account alongside the loan details, or in the section showing how loan interest was calculated.
5. Sense-check the interest charge itself. If your loan balance is $600,000 and you have been holding a meaningful offset balance, the interest charged should reflect the smaller net figure rather than the full loan amount.

If you are unsure at any point, contact us, and we will help you confirm it. Understanding how an offset account works on paper is one thing, and confirming a specific lender has wired it up correctly is another.

Offset Account vs Redraw Facility

These two get confused constantly, and the difference matters. An offset account vs redraw comparison comes down to where your money actually sits. 

With an offset, your savings stay in your own transaction account, yours to move at any time. With a redraw facility, you have made extra repayments into the loan and are asking to pull that money back out. Lenders can restrict redraw access, set minimum withdrawals, charge for it, or reduce the available limit. Redraw can also carry different tax consequences if the property later becomes an investment, so raise it with your accountant first. 

For borrowers who want their savings genuinely on call, the offset generally wins on flexibility. For borrowers who suspect they will spend anything they can see, redraw’s friction can be a feature rather than a flaw. 

Full Offset vs Partial Offset

Not every offset is created equal. A full offset account, sometimes marketed as a 100% offset, counts every dollar of your balance against the loan when interest is calculated. 

A partial offset counts only a percentage, or offsets at a lower rate than your loan rate, which meaningfully reduces the benefit. 

It is also worth knowing that offsets are generally attached to variable rate loans. Some lenders offer an offset feature on selected fixed rate products, though often with a cap on how much of the balance counts. If you are on a fixed rate and assumed you had a full offset running, that assumption is worth checking alongside the link itself. 

Offset Account Disadvantages Worth Weighing Up

An offset is not automatically the right choice. The main offset account disadvantages are: 

• Cost. Loans with an offset feature often carry a higher interest rate, a monthly account fee, or an annual package fee. If your typical balance is small, the fee can quietly exceed the interest saved.
• It rewards discipline. The benefit is only as good as the balance you maintain. An offset that hovers near zero is just a transaction account with extra paperwork.
• Complexity. More accounts means more moving parts, and as ASIC's review demonstrates, more opportunities for something to be set up incorrectly.

For borrowers holding a solid balance, none of these outweigh the savings. For someone with a modest buffer, a lower rate loan without the offset can be the better maths. It is a calculation worth doing properly rather than assuming.

An Offset Account Home Loan Only Saves You Money If It Is Actually Connected

The ASIC review is a useful reminder that a financial product working correctly is not the same as a financial product existing. An offset account home loan can shave years off your mortgage and thousands off your interest bill, but only when the link is live, the structure suits how you actually manage money, and the fees stack up against the balance you genuinely hold.

Ten minutes in your banking app is enough to rule out the most common failure. If what you find does not look right, or you are not certain what you are looking at, that is a conversation worth having rather than a question worth parking.

Key Takeaways

• An offset account is an everyday transaction account linked to your home loan, and its balance is subtracted from your loan before interest is calculated daily.
• ASIC's July 2026 review of eight lenders, covering around 70% of the mortgage market, found that 55% of the issues identified involved offset accounts that were never linked to the borrower's loan.
• Lenders have already paid more than $55 million in customer compensation for offset failures, and ASIC expects further compensation to follow.
• Broken offset links are most common after a refinance or when a borrower rolls off a fixed rate onto a variable rate.
• You can confirm the link yourself through your banking app under "Manage", "Offset Accounts" or "Account Details", or by checking the account numbers on your latest home loan statement.
• Interest saved through an offset is not taxable income, which often makes it more valuable than the equivalent return from a savings account or term deposit.

Talk to Osinski Finance About Your Offset Setup

Osinski Finance is a family-owned mortgage broking business based in Rockingham, helping clients across Perth and Western Australia since 2017. We can help with home loans, investing in property, and refinancing your home loan, with access to nearly 100 lenders.

Whether you want to check your current offset setup, find a better home loan, or refinance to a more suitable option, our team can help you compare your choices.

Message us today. 

Frequently Asked Questions

How does an offset account work in simple terms?

The balance in your offset is deducted from your loan balance before the lender calculates interest. Owe $600, 000 and hold $500, 000 in the offset, and you are charged interest on $550, 000. Your repayment does not change, so the interest you save pays down the principal faster. Interest is calculated daily, so even short-term balances count.

What is an offset account actually costing me?

Loans with an offset commonly carry a higher interest rate than a basic loan, a monthly account keeping fee, or an annual package fee. The cost only makes sense if the interest you save exceeds what you pay for it, so compare the annual fee against the interest saved on your typical balance. A broker can run that comparison across multiple lenders rather than just the one you are with.

Does an offset account reduce my monthly repayments?

No, and this surprises people. Your scheduled repayment stays the same; what changes is the split, with less going to interest and more to principal, which shortens the loan. Some lenders will let you reduce repayments to the new minimum on request, though that gives up the benefit entirely. If you are curious whether repayment frequency changes the outcome, our myth buster on weekly repayments and offset loans covers it.

How much money should I keep in an offset account?

There is no fixed threshold, because the benefit scales directly with the balance and the length of time it sits there. A practical approach is to have your salary paid in, run your everyday spending from the account, and hold your emergency buffer there rather than in a separate savings account. The key comparison is whether your average balance earns more interest than the account fee costs. If your balance rarely rises above a few thousand dollars, a basic loan at a lower rate may serve you better.

Is it better to make extra repayments or use an offset?

Both reduce the interest you pay, but they behave differently when you need the money back. Extra repayments sit inside the loan and come back to you through redraw, which the lender can restrict or charge for. Offset funds remain in your own account and are available immediately. For most borrowers who want their savings accessible, the offset is the more flexible option, though the interest outcome is broadly similar while the money stays put.

Can I have an offset account on a fixed rate home loan?

Offset accounts are generally attached to variable rate loans. Some lenders do offer an offset on selected fixed rate products, but often with restrictions such as a cap on the balance that counts towards the offset. If you are fixing your rate and the offset matters to you, confirm the specifics in writing rather than assuming the feature carries across. This is also one of the moments when an existing offset link is most likely to break.

How do I know if my offset account was affected by the ASIC review?

ASIC did not publish a list of affected borrowers or name which of the eight lenders performed worst. The most reliable approach is to check your own account rather than wait to be contacted. Log into your banking app, open your home loan account, and confirm the offset account number listed there matches the account you are actually using. If your lender identifies an error, it is required to remediate it, and more than $55 million has already been paid in compensation across the industry.

What happens to my offset account when I refinance?

Refinancing creates a new loan, which means the offset account has to be established and linked again under the new structure. This is precisely where ASIC found failures most often occurred. Add a specific check to your post-settlement routine: within the first month, confirm the new loan shows a linked offset with the correct account number. If you refinance through a broker, this is something they should be confirming with you.

Is an offset account worth it if I only have a small balance?

Often not. If you carry an annual package fee of several hundred dollars but rarely hold more than a few thousand dollars in the account, the interest saved may not cover the cost. In that situation, a basic variable loan at a lower rate can leave you better off overall. The calculation shifts quickly as your balance grows, so it is worth revisiting whenever your circumstances change rather than treating it as a one-off decision.

Can I have more than one offset account against the same loan?

Some lenders allow multiple offset accounts linked to a single loan, which suits borrowers who like to separate their money into buckets for bills, holidays and emergencies. Others permit only one. Where multiple accounts are allowed, all linked balances typically count towards the offset, though fees may apply per account. Confirm both the limit and the fee structure with your lender before setting up several accounts.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal, nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to your circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.