Federal treasurer Josh Frydenberg's blunt message to Australian mortgage-holders comes as a report reveals the big four banks are pocketing billions of dollars every year because they haven't passed on interest rate cuts.

A report from RateCity shows as rates dropped from 2011, the big four banks either didn't pass on the full cuts or hiked rates up again in between cuts.

"They ignored the advice of the independent Reserve Bank of Australia and thumbed their noses at Australian consumers," Mr Frydenberg told reporters in Melbourne on Monday.

"Banks should never be increasing their profits at the expense of their customers. And by not passing on these rate cuts in full, that is effectively what is happening.

"The best way for the banks to get the message is for customers, for Australian families, for Australian businesses, to seek the best possible deal. If they don't get it from their existing credit provider, then go elsewhere."

RateCity research director Sally Tindall says banks can't pretend it's costing them more to lend to home-buyers.

"The cost of funding started has come down significantly since February 2019, however, the banks didn't then drop their rates back down again for existing customers after those wholesale cost pressures alleviated," she said.

The RateCity report showed while interest rates have dropped four per cent since 2011, the banks have only dropped them three per cent, saving themselves billions.

The big banks are offering standard variable rates of about 4.75 per cent - significantly higher than the Reserve Bank's official rate of 0.75 per cent.

When the Reserve Bank cut the interest rate by 25 basis points last week, the Commonwealth Bank, Westpac, ANZ and the NAB only passed on 13 to 15 basis points to customers.

"Five of the smaller lenders passed this rate cut on in full, but the big four did not," Mr Frydenberg said.

They're also saving money by cutting interest rates for deposits, with savings lodged with the big four earning less than 0.15 per cent for a full year.

Labor has flagged potentially raising the bank levy on the big four banks in response to their decision not to pass on the rate cuts.

Deputy Labor leader Richard Marles said it was "critically important" the banks passed on the full amount.

"The government's got to do more than barracking or whingeing from the sidelines," he told reporters in Tasmania.

"They have actually got to come up with some policy going forward which sees that when the Reserve Bank does a cut of official interest rates, that the beneficiaries of that are Australian consumers."

Mr Frydenberg said Labor's default position was to add new taxes to fix problems, whereas the coalition was encouraging the market to force the banks into action.

Australian Associated Press