Millions of Australians who have stashed money at their local bank branch could soon be earning next to nothing, if the Reserve Bank cuts interest rates as expected.

Key points: The Reserve Bank left the cash rate at 1.5 per cent on Tuesday, but economists predict it will cut the cash rate later this year

The Reserve Bank left the cash rate at 1.5 per cent on Tuesday, but economists predict it will cut the cash rate later this year Financial analysts warn this could see customers end up with no return for their money deposited in banks

Financial analysts warn this could see customers end up with no return for their money deposited in banks If another rate cut is passed, it may not be practical for the banks to pass that on to customers, a former ANZ chief economist said

"It's potentially a gigantic issue," CLSA banking analyst Brian Johnson warned.

Despite enormous pressure from financial markets, the Reserve Bank held its nerve on Tuesday and left the cash rate unchanged at the record low level of 1.5 per cent.

But most economists expect it will cut the cash rate this year, probably twice.

Normally when the Reserve Bank cuts the cash rate the banks follow suit by passing that rate cut onto borrowers.

Mr Johnson said that was even more likely now in the wake of the banking royal commission.

"When you think of the politics of where we are right now, I think it would be unrealistic to think that the banks couldn't pass [a rate cut] on," he argued.

A hit banks 'can't afford'

Shaw and Partners banking analyst Brett Le Mesurier said, with deposit rates already close to rock-bottom levels, banks risk losing millions of dollars on their mortgage products because they might not be able to cut deposit rates as much as home loan rates.

"If they passed on the full home loan rate cut to borrowers, in other words a 25-basis-point cut in the cash rate led to a 0.25-percentage-point reduction in everybody's mortgage rate, then the reduction in the profit of the banks would be in the order of 4 per cent," he explained.

"That would have adverse consequences for the share price and shareholders of course.

"You'd think the share price [of the major banks] would fall at least that amount, possibly up to twice that.

"It's a hit they can't afford at the moment."

Banks will have little choice but to pass on the cost of an interest rate cut to depositors, Mr Le Mesurier says. ( AAP: Joel Carrett )

Savers may end up worse off

Mr Johnson said Westpac was the only big four bank he was aware of which had investments specifically designed to help protect its bottom line from a Reserve Bank rate cut

Savers could earn less and be stung by bank fees, Mr Le Mesurier said. ( ABC RN: Ben Hays )

Mr Le Mesurier argued the banks had little choice but to pass on the cost of a Reserve Bank interest rate cut to depositors.

He warned that would leave depositors worse off.

"They'll get no return for their money being on deposit with the bank," he said.

"There may well also be fees associated with the accounts they're operating."

While it might then make sense to stash your cash under the pillow, Mr Le Mesurier said that posed obvious security risks.

Monetary policy 'not working anymore'

Mozo is an interest rate comparison website. Its database tracks 190 savings accounts.

Mozo's Peter Marshall said 38 per cent of deposits were currently offering 0.3 per cent return or less.

That, he said, meant close to 40 per cent of all Australian savers were at risk of losing money if the Reserve Bank cut interest rates, especially if it lowered them twice or more.

Former ANZ chief economist turned UTS business professor Warren Hogan said the issue posed a huge problem for the Reserve Bank.

"We're starting to see a level of interest rates where it's not practical for the banks to follow through," he argued.

"We are maybe at a point now, or within 25 basis points or 50 basis points worth of rate cuts, where we're starting to get into a position where monetary policy is no longer working … and may have some negative consequences for the financial system."

He now believes any future economic boost will have to come from government coffers.

"We've clearly got plenty of fiscal fire power," he said.