Gibbons Deposit Company Ltd. has announced a 0.5 percent hike in interest paid on demand deposits, bringing the rate to 4.75 percent.

The change, effective on Monday, puts Gibbons Deposit Company well ahead of other Bermuda financial institutions in interest paid on savings which can be withdrawn on demand.

The Bank of Butterfield pays 3.0 percent, while the Bank of Bermuda pays 2.34 percent on passbook savings accounts and 3.34 percent on statement savings accounts, spokesmen said.

Spokesmen for Bermuda Savings & Loan Ltd. and Somers Mortgage & Finance both quoted interest rates of 3.5 percent.

Gibbons Deposit Company said "the rise was in response to increases in short term rates locally and the US and to maintain its position as market leader.'' The company was also looking at its term deposit rates, but would make no move until the outlook for US rates became clearer, the statement said.

The 4.75 percent rate applies to accounts to which customers have access during office hours. There is no limit on cheque withdrawals, but cash withdrawals are limited to $500.

Mr. James Masters, executive vice-president of bank asset management at the Bank of Bermuda, said he did not expect any immediate rise in interest paid on demand deposits at the bank.

"We're not experiencing a need to raise deposit rates,'' Mr. Masters said.

"Where we tend to be concerned is if in fact US rates move up.'' Due to easing of Government exchange controls, "Bermudians now have much more flexibility and can convert some amounts into US dollars.'' Over time, he expected a narrowing between Bermuda and US interest rates. The US Federal Reserve has adopted a "wait and see approach'' before hiking interest rates further, but some analysts believe the American dollar's weakness against the Japanese yen will force such a move.

Mr. Campbell McBeath, manager of Bermuda Savings & Loan Ltd., said his company did not try to be competitive in interest paid on demand deposits, concentrating instead on longer-term deposits.

"It could be, if rates go up generally, we'll adjust everything upwards,'' he said. "Right now, we're holding.'' It would all depend on what happened with rates in the US, he said.