Northern Rock savers to lose 100% protection

10 February 2010

Savers with Northern Rock will lose their 100% protection guarantee when the beleaguered bank returns to the private sector.

The Treasury is reportedly planning to give savers three months' notice of the move, with an official announcement expected in the next couple of weeks. 

Savers will then have the same protection as depositors with other banks. This covers them for up to £50,000 for individual accounts, or £100,000 for joint accounts.

However, people who took out fixed-term rate bonds and cash ISAs while the guarantee was in place are likely to see all their money protected until the product in question matures.

Northern Rock introduced the guarantee two years ago, after the government was forced to prevent a run on the bank. It offered to fully protect all money held in Northern Rock as savers queued to withdraw their cash.

Rival savings providers, however, complained the guarantee created an unlevel playing field.

Andrew Hagger, spokesman for, explains: "The savings market has been distorted as it saw consumers with deposits in excess of the £50,000 Financial Services Compensation Service limit seeking security of ‘safe havens’ such as Northern Rock and National Savings & Investments to shelter their cash in one place rather than having the inconvenience of spreading it between providers."

Removing the guarantee would mark an important step towards independence for the troubled bank, which was taken into public ownership early in 2008.

Northern Rock was formally split into a 'good bank' and a 'bad bank' in January 2010 following its restructuring last year.
The new savings and mortgage bank - called Northern Rock - received FSA authorisation on 1 January. It holds savings balances of around £19 billion and has around £10 billion of low-risk residential mortgages.
The 'bad' bank - named Northern Rock (Asset Management) and chaired by Bradford & Bingley's Richard Pym - has a residential mortgage book of about £50 billion and £4.5 billion of unsecured personal loans.

This will remain in government hands and will no longer offer new mortgages. However, the latest figures reveal that only 10% of its mortgage book is in arrears.
The good bank will eventually be sold off; it has already caught the eye of several potential buyers, with Virgin Money and National Australia Bank emerging as the frontrunners.

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