AIB is to pay 4 per cent interest on current account balances up to €1,500 from March as part of the bank's latest strike to retain its position as the Republic's biggest bank.

AIB managing director Donal Forde said yesterday that the offer was "a shot across the bows" of the bank's rivals.

The interest will be paid to customers who have monthly lodgments of €1,500 or more, which means, in general, it will be people whose salaries are paid into their AIB current account who will benefit. The value of the offer is worth €60 a year to a customer who keeps their balance above €1,500.

The offer replaces AIB's existing rate of 0.5 per cent on balances up to €1,000 and is the highest interest rate available in the market. National Irish Bank (NIB) pays interest of up to 2.25 per cent on balances under its current account packages, but these have an annual fee of up to €125.

The AIB move comes just one week after its announcement that it will cut the interest it charges on mortgages to 4.1 per cent for homeowners whose loans are equal to less than 50 per cent of the value of their property. That offer followed the launch of cut-price mortgages by NIB and Halifax.

Mr Forde said AIB was planning further offers on other key products, some of which would relate to price and others which would improve convenience. "It is a statement on our part to our customers in the first instance that we will meet their needs and they don't need to be looking anywhere else."

But he denied that AIB's move was sparked by attempts by smaller banks to gain market share at AIB's expense. "There was an awful lot of noise around free banking last year, but the numbers coming to us or moving away were inconsequential. "