AIB will pay interest to some of its current account customers from June but will withdraw free banking from others, writes Siobhán Creaton, Finance Correspondent.

AIB's head of retail banking, Mr Donal Forde, refused to disclose how many of its more than 500,000 current account customers would end up paying higher bank charges as a result of these changes. The Republic's biggest bank has said that it will pay 0.5 of a percentage point in interest to customers who access their current accounts by phone or use the internet once they maintain €1,000 in credit.

But customers who qualified for free banking once they held a balance of more than €500 in their current accounts will be forced to pay bank charges.

However, the bank will continue to offer this saving to students and customers over 60.

Mr Forde said that AIB wanted to be the first financial institution to introduce interest payments on personal current accounts.

"The market has become more competitive and customers expect to be rewarded in some measure," Mr Forde said, adding that a significant number of its customers would benefit from this initiative.

He suggested that the new interest payment could yield average savings of 10 per cent for customers who pay transaction fees on their accounts. The bank has also pledged not to increase its charges on personal current accounts until at least 2005.

During the summer, AIB will offer two additional current accounts. One will be a fully automated account aimed at customers with a small number of transactions on their accounts. The other account will have packaged benefits offering discounts on services such as credit cards.

Last year, the bank began to pay interest on funds held in current accounts operated by business customers but only if they did their banking on the internet. It suggested that up to 50,000 customers would benefit.

Next week Bank of Scotland Ireland will introduce a similar service and has also signalled that it will offer reduced rates of interest on overdrafts.

Bank customers will begin to pay the increased stamp duty on credit and debit cards from today. In the Budget, the Minister for Finance, Mr McCreevy, raised the rate of stamp duty to €20 on debit and cash cards and to €40 on a credit card.