Northern Rock loses 100% savings guarantee

24th Feb 2010 10:17

Northern Rock has confirmed that it will lose the government's guarantee that protects 100% of customers' savings on their deposits in three months' time.The Newcastle-based lender said removal of the guarantee, which was broadly anticipated, will take place on 24 May.Savers will continue to be covered by the Financial Services Compensation Scheme which provides protection up to £50,000 per person, the same as for other banks and building societies.The bank, which was taken over by the Treasury two years ago, introduced the guarantee after the Chancellor stepped in to stop a run on the Rock in September 2007. 'This is another positive step in the right direction and the decision reflects our good progress and the strong capital position of Northern Rock,' chief executive Gary Hoffman said today.'The company is returning to a level playing field and our savers will enjoy exactly the same level of protection, under FSCS, as customers of other UK banks and building societies.'Northern Rock was split into a 'good' and 'bad' bank on 1 January this year, with the 'good' bit holding all the deposits, worth about £19bn, and £10.4bn of quality mortgages. The government has also boosted its coffers by £8bn by increasing its loan from £15bn to £23bn. The 'bad' bank is now the home for £50bn of mortgages. Experts think Northern Rock will eventually be merged with the Lloyds or RBS branches that have to be sold, while the 'bad' bank may be combined with the existing mortgages of Bradford & Bingley, also government owned. A number of buyers are expected to start sniffing once the process is complete.