The Reserve Bank's cash rate hike may be doom and gloom for mortgage borrowers, but Inge Meldgaard is hopeful that higher rates will boost earnings from her savings.

"I was extremely pleased," the 69-year-old pensioner told ABC News.

When it comes to passing the rate rise on to savers, most banks so far have been slow to do so.

But for low-income earners like Ms Meldgaard, their lives are depending on it.

"When people are on as low an income as I am, even a few thousand a year makes a difference," Ms Meldgaard said.

The interest Ms Meldgaard is earning on her savings from the bank has been a crucial part of her income since she retired early in 2006 due to health conditions.

She said back then she was earning as much as 10 per cent on her savings, meaning she could support herself without a job or a pension.

Savers have suffered from years of low interest rates

Over the past few years, with record low-interest rates, there's been a steady erosion in savings rates across the banks.

This has caused a huge blow to the safety net of many pensioners and self-funded retirees.

Ms Meldgaard, who lives by herself in Belgrave Heights in Melbourne's south-east, said even with the age pension it would not be enough to cover most of her basic expenses, while she has been "very frugal" and kept her expenses "down to the bare minimum".

Last week, the RBA hiked interest rates for the second time in two months, lifting the cash rate from 0.35 per cent to 0.85 per cent.

In May, the central bank raised the official interest rates by a quarter of a percentage point for the first time in more than a decade to curb surging inflation, with the cost of living up 5.1 per cent over the past year.

Most lenders have passed the full value of the May rate hike to variable mortgage rates, while about two dozen banks are passing on the June hike in full.

It's a different story for the savings rates.

When will the banks pass on the rise to savings accounts?

Analysis from RateCity shows that since the rate rise this month, only about 14 per cent of the banks have announced savings account hikes.

In response to last month's rate rise, 66 per cent of the lenders lifted savings account rates in line with the 25-basis-point cash rate movement in May, according to Canstar.

So far, only one of the big four banks has announced it would pass on the full value of the June rate hike for selected deposit accounts.

The Commonwealth Bank said it would lift the bonus interest rate of GoalSaver and YouthSaver accounts by the full half percentage point from June 17, while Westpac, NAB and ANZ have yet to announce any hikes to savings accounts.

Meanwhile, competition in the savings sector has started to heat up, with Macquarie and ING aiming to lure savers with higher interest rates.

Macquarie Bank announced it would be increasing the interest rate on its transaction account from 0.20 per cent to 1.50 per cent on balances up to $250,000 from June 17, while ING increased the interest rate on its Savings Maximiser account by 0.75 percentage points to 2.10 per cent on balances up to $100,000 from June 15.

According to the latest figures from banking watchdog, the Australian Prudential Regulation Authority (APRA), Australians are sitting on $1.27 trillion in savings, an increase of $281 billion since the pandemic. 

"[Banks] are not under as much pressure and they're not really draining or leaking any deposit monies at the moment," Steve Mickenbecker from Canstar told ABC News.

He added that the consumers should shop around now to find the best rates as they could be paying "two or three times the average rates".

First home buyers reel from higher rates

The rate hike was a bitter pill to swallow for Perth aspiring homeowner Ben Horn, despite the prospect that he could earn more on his savings.

"It was mostly bad news, because we are sort of close to the point of applying for finance through a broker," the 30-year-old bookkeeper told ABC News.

"Knowing that the rates were about to go up, knowing what that would do to our potential serviceability, that is causing a lot of anxiety."

Mr Horn said it was "unfair" that the banks were quick to pass on the full rate rise to borrowers but not savers.

Mr Horn and his wife have been living with their parents for the past nine months, after their rental property was sold but have been unable to find a new suitable place to live.

Mr Horn took advantage of living with family.

He has been putting half of his salary into his savings for the first home deposit.

But the interest rate on his savings account was so low that he had to ask his in-laws for help.

"We would at least be building a buffer … even if it is $50 over a year, that is still a little bit of additional money that can be helpful in the long run."

'Recession risks rising dramatically'

In general, when interest rates go up, banks do make more profits, but there are other factors than just higher variable mortgage rates.

It is not easy for bank analysts to settle on a number on how much the banks will make from rising rates.

Jefferies' lead banking analyst Brian Johnson said the banks' profit margins have already been under pressure due to different reasons.

"We can see banks now seem to be scrambling to basically increase term deposit rates. This creates a degree of complexity on the margin that had not been expected.

"Then over and above that, we can see, for example, the finance sector union probably will try and get 6 per cent pay rises, you've got the risk that some of the banks might even have to top-up their loan loss provisions and perhaps the capital positions are not as strong as we had thought."

So far, the big four banks have committed a term deposit of 2.25 per cent for a period from 11 months to 18 months.

There are even higher offerings for term deposit rates in the market, up to 4.15 per cent for five years from AMP Bank.

Mr Johnson said if customers started to pull out their money from their transaction accounts into term deposits, that could be bad for bank earnings.

Last week, tens of billions of the market value of the big four banks was wiped off as investors feared the cash rate rise would end the robust growth in their mortgage books.

"When you have a look at the whole market, it does look remarkably like the 1970s which is that inflation comes through, employers pass it on by way of high prices, which means wage rates go up, so we do seem to be in kind of [a] wage-price death spiral, [or at] the beginning of it," Mr Johnson warned.

"I think the recession risks in Australia are actually rising quite dramatically."

Watch the story on The Business tonight at 8:45pm AEST on ABC News Channel, or stream on ABC iview.

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