AIB has joined Bank of Ireland and Irish Permanent by increasing its interest rates by up to half a percentage point.

The rises for non mortgage borrowers are larger than those posted by the other two banks last week. However, savers stand to gain by the same amount. Mortgage holders will see rises of a quarter point, reflecting the tough competition in the home loan market.

The other institutions are not expected to follow at least over the next few days.

All AIB's special savings and notice deposit accounts will pay half a per cent more at between 4 and 4.5 per cent for special savings.

The variable mortgage rate is being increased by a quarter point to 7.35 per cent (APR 7.57 per cent), increasing repayments on a £40,000 mortgage by around £6 a month.

Rates on personal term loans have been increased by a half point. Term loans will now cost 11 per cent a year, the same level as overdrafts, which have not increased.

Business customers will also face higher lending rates. Term lending rates are being increased by a quarter point to between 9.5 per cent and 10.5 per cent. Business overdraft rates are being increased by 0.45 percentage points to 9.95 per cent, while loan accounts will now cost 11 per cent, a half point rise.

However, the smaller lenders, have yet to act. A spokesman for the First National Building Society said they were keeping the situation "under review" and that he didn't expect to see any increase pending the release of the credit figures on September 5th. If they are positive, First National's rates might not increase at all, he added.

A spokesman for TSB said he saw no chance of an interest rate rise "at least in the next few days". In reaction to the rise from Bank of Ireland he said, "we are not panicking, we were quite disappointed that the other institutions have chosen to increase their rates, we feel the market is not as negative as that".

A spokesman for the EBS said there "were absolutely no plans to increase rates in the near future".

Last week Bank of Ireland increased its variable mortgage rate by 0.2 of a percentage point from 7.25 per cent, to 7.45 per cent. On Thursday, Irish Permanent raised its rates after a extended period without a rise.