Northern Rock savers have been urged to find new homes for their money after the government confirmed plans to scrap the bank's 100% protection guarantee in three months' time.
The Treasury says the move will mark an important step in the troubled bank’s return to “independent, commercial strength”. The guarantee, which was introduced two years ago to prevent a run on the bank, will end at the end of business on 24 May.
After this point savers with Northern Rock will 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, should the institution fail.
Savers with fixed-rate accounts will continue to benefit from 100% protection until their accounts mature. Any account opened from today (24 February) will only receive standard Financial Services Compensation Services protection.
Paul Myners, financial services secretary to the Treasury, says the guarantee helped stabilise Northern Rock and restore confidence in the bank’s operations.
"Over the last two years, we have worked to get the bank back to financial health,” he adds. “We have taken a number of important steps, most recently to divide the bank into a retail business that will be sold back to the private sector in due course, and an asset management company that will remain in government ownership.
“Our goal is to see the taxpayer get a good return on its investment in the bank and for Northern Rock to focus on providing an excellent service to its customers.”
The move has been welcomed by the bank’s competitors, who say the guarantee has created an uneven playing field.
Adrian Coles, director-general of the Building Society Association (BSA), says: “The guarantee has enabled Northern Rock to attract substantial inflows following the bank's nationalisation.
"The BSA has actively lobbied for the removal of Northern Rock's 100% savings guarantee as societies are fast becoming the only providers of financial services not to be directly subsidised or supported by the state.”
Savers with National Savings & Investments also receive 100% protection on their money.
In light of the guarantee’s removal, Justin Modray, director of candidmoney.com, says some savers might want to consider moving their money to a provider paying a more competitive rate of interest.
"Northern Rock's interest rates are uncompetitive with the best in the market and are, in some cases, downright awful,” he explains. “So if you’ve been harbouring variable-rate savings with Northern Rock to benefit from the government guarantee there's no reason to stay beyond 24 May.”
|Best instant access and notice accounts|
|Provider||AER||Notice period||Minimum deposit|
|Alliance & Leicester||2.75%||None||£1,000|
|Best fixed-rate accounts|
|ICICI Bank||4.25%||Two years||£1,000|
|Birmingham Midshires||4.5%||Four years||£1|
|Get 100% protection - National Savings & Investment products|
|0.3%||Instant (variable rate)||£100 - £9,999|
|0.45%||Instant (variable rate)||£10,000 - £49,999|
|0.7%||Instant (variable rate)||£50,000 +|
|1.56%||Two years (fixed rate)||£100|
|2.81%||Five years (fixed rate)||£100|