Ulster Bank will review the deposit interest rate of 4.2 per cent it introduced only last week after some £60 million (€76.2 million) was placed in instant access accounts in the past five days. It is understood that any reduction in the rate offered to customers will not affect those who have already deposited money with the bank.

The bank is likely to review the offer early next week in an assessment of its overall marketing strategy. It is likely to attempt to curtail the level of new deposits by reducing the 4.2 per cent interest for new depositors which has been offered since the beginning of the week.

At present, Ulster Bank customers who put more than £1,000 on deposit can avail of the rate. The offer was backdated to include funds held since September 1st. The rate was introduced by Ulster in response to a 4 per cent demand deposit rate offered by British bank Northern Rock a week previously.

While Ulster has not revealed how much money was placed on deposit with the bank, it is understood that customers lodged some £60 million in the past week.

Other Irish banks have yet to change their rates, although the banks will be keenly aware of the movement of some £60 million of funds in the past week. With Bank of Scotland introducing reduced mortgage interest rates some weeks ago, Irish banks were swift to follow.

When it was introduced, Ulster Bank said the offer would not be withdrawn "if we get a decent response". But the bank is understood to be surprised at the response to its initiative, with business exceeding expectations.

The bank is believed to be considering further schemes.

Deposit interest rates are at historically low rates in the State. Before Northern Rock's arrival, customers were being offered 0.1 of a percentage point in interest on deposits worth more than £3,000. To qualify for a rate of 4 per cent, customers were required to hold at least £10,000 on deposit and be prepared to keep the money in the bank for more than a year.

Ulster's review of the scheme comes soon after a rejection yesterday by Ulster Bank's owner, NatWest, of a fresh £27.58 billion bid for the bank by Bank of Scotland. NatWest has said it will sell or float Ulster Bank as part of its defence against the bid.

Stating that it was as yet too early to comment on the level of deposits lodged by its Irish customers, a Northern Rock spokesman said the bank had posted some 1,800 application forms since it began the business two weeks ago. Northern Rock has said it wants to secure 2 per cent of the £30 billion held by Irish depositors - this would be worth £600 million.

Depositors at the British bank lodge and withdraw money by post, fax, telephone or Internet. Unlike Ulster, which has not guaranteed how long its low rate would apply, Northern Rock has pledged to maintain its interest rate one percentage point ahead of euro-zone base rates until January 1st, 2001 and to match ECB rates until 2002.