The banking market is set for a second assault from a British bank with today's announcement from Northern Rock that it will offer deposit accounts by telephone, post and the Internet to Irish customers.

Initially Northern Rock will offer two demand deposit accounts which sources said would carry interest rates substantially above what is available on the domestic market. Demand accounts from the Irish banks offer negligible interest rates - as low as 0.25 per cent - and there has even been speculation that some banks might begin charging depositors for these types of accounts.

A spokesman for Northern Rock would not comment on the savings products ahead of today's announcement but it is understood minimum deposits of around £1,000 (€1,270) will be required. It is understood that the interest rates on offer will be a substantial multiple of existing deposit rates, although the spokesman would not comment.

The move by Newcastle-upon-Tyne-based Northern Rock - a building society until it was floated on the stock market two years ago - follows closely on the move by Bank of Scotland into the Irish mortgage operation. Bank of Scotland's move into the mortgage market resulted in interest rates on home loans falling 1 1/2 percentage points to below 4 per cent, with the Irish lenders being forced to respond to the sub4 per cent loans on offer from Bank of Scotland.

Bank of Scotland, using telephone selling of its mortgage product, operates a low-cost home loans business in Ireland and banking sources in Dublin believe Northern Rock, in partnership with Canadian Imperial Bank of Commerce, will be able to offer higher interest rates to depositors by operating on lower margins than the Irish banks.

With no Irish branch network to support, Northern Rock will use low-cost telephone, post and Internet selling for its Irish savings products.

Similar Northern Rock telephone savings accounts in Britain allow for withdrawals by transfer to the depositor's bank or building account within three working days, with a minimum withdrawal of £250 sterling (€393). Withdrawals can be transferred to a depositor's bank account within one day but a £30 charge applies for this sort of transaction. Withdrawals can be made by telephone or by post, but not fax or e-mail, according to Northern Rock's website.

While Bank of Scotland has forced down the cost of mortgages in Ireland to record low levels, there are still no figures on the value of mortgages it has actually sold, as opposed to the £250 million of mortgages it has approved.

Banking sources believe that if Northern Rock can combine easy withdrawals with interest rates substantially above current deposit rates from Irish banks, there is a huge potential market from those depositors who are unwilling or unable to lock their money away from periods of one month upwards to get higher deposit rates.

"A lot's going to depend on how simple things like withdrawals will operate, but if Northern Rock is able to operate on lower margins than the Irish banks, then the Irish banks will have to respond. They can't simply allow their deposit base to walk," said one banker.

The arrival of Northern Rock will undoubtedly result in Irish banks having to operate on lower margins on their deposits just as Bank of Scotland's arrival has forced them to operate on much lower margins on their home loans.

Northern Rock will also open savings operations in the Bahamas and close a quarter of its UK branches, in spite of a sharp pickup in trading in the past four months. It will also begin a £150 million sterling share buyback next year to return capital no longer needed, thanks to the securitisation of loans.

The bank, will also begin to diversify next year by selling investment products through its Internet site.

The move into Ireland will provide a more immediate source of funding. It follows the failure of the bank to compete with new entrants - such as the Prudential's Egg - in the first half of the year, when Northern Rock lost £600 million of deposits. Mr Applegarth said the outflow of savings had been stemmed since June.