AIB has upped the ante to win new business customers to its internet banking service by offering to pay interest on money held in current accounts from September.
The announcement was welcomed by groups representing small businesses, which called on other banks to follow suit. None of the Irish banks pay interest on funds held in current accounts by business customers.
Mr Donal Forde, managing director of AIB's retail banking operations, said the bank did not have any immediate plans to extend this initiative to benefit its 500,000 personal current account holders.
AIB personal and business customers in Britain earn interest on money held in current accounts. National Irish Bank and Ulster Bank are the only financial institutions in the Republic to offer a rate of interest on selected personal current accounts.
From September 16th, up to 25,000 AIB business customers who use its internet banking service will be eligible to receive a rate of interest of 0.5 of a percentage point on money held in credit in their current accounts.
In total, AIB has 100,000 business customers and is hoping this initiative will attract many of them to switch their business to the internet. It will also be targeting new customers for this product.
"We expect that the number of business customers using the online banking service will double over the next 18 months from 25,000 to 50,000," Mr Forde said yesterday.
AIB will credit the interest rate to business current accounts on a quarterly basis net of Deposit Interest Retention Tax (DIRT). The interest rate will also apply to business accounts that have an overdraft and will apply as the funds in that account swing from debit to credit.
The bank has also introduced a new range of deposit accounts for business customers offering interest rates of up to 3 per cent and the flexibility to access 35 per cent of funds on demand without penalty. This new account will be available from August 6th.
Last month, Britain's four biggest banks - HSBC, Barclays, Lloyds TSB and Royal Bank of Scotland - introduced a rate of 3 per cent on current accounts to business customers.
The Irish Small and Medium Enterprises Association (ISME) said AIB's initiative would alleviate the excessive rates of interest generally charged to small businesses on loans and overdrafts.
"While the rates of interest paid are modest enough, it still constitutes a step in the right direction. However, ISME would have preferred that it was available to all business current account holders and not just those using online banking," it said.
The Small Firms Association (SFA) said the scheme would be particularly attractive to customers required to keep large amounts of cash in their current account to meet cash-flow needs. SFA director Mr Pat Delaney said the association hoped and expected other banks to respond in a like-minded way.
AIB refused to disclose the cost to the bank of this new departure but insists it will lower its margins.
