AIB has joined in the latest round of interest rate cuts, benefiting borrowers but illustrating the low returns now available to savers.

The interest rate on a demand deposit account for amounts up to £49,999 has now been halved to 0.125 per cent, down from 0.25 per cent previously. This means that the annual return for each £100 deposited would be just 12.5p. The rate for amounts of £50,000 to £99,999 falls to 0.25 per cent. Most savers relying on an interest return would have their savings in other deposit products, but even here returns are falling.

For the AIB deposit plus account, the interest rate on amounts up to £4,999 falls from 1.35 per cent to 1 per cent. The highest rates of interest for notice deposit accounts have fallen by between 0.4 of a point and 0.5 of a point and are now between 2 and 3.5 per cent, depending on the time period for which the money is kept and the amount saved. With the rate of inflation expected to be around 2.5 per cent this year, such rates will produce little real return.

Borrowers, however, are reaping the benefits of the low-rate environment. The bank has reduced its standard variable rate mortgage by 0.5 of a percentage point to 5.75 per cent, with the endowment mortgage rate set at the same level. AIB has also cut its business lending rates, with reductions of between 0.35 and 0.5 of a percentage point depending on the type of loan. The new business overdraft rate is 8.65 per cent, while the three to five-year term loan rate falls to 7.9 per cent. Its personal overdraft rate will drop by 0.25 of a point to 10.5 per cent, or 9.5 per cent for an on-line overdraft.

The new rates comes into effect from close of business today. AIB is the first financial institution to reduce interest rates on deposits in response to the last Central Bank rate cut in December.