Northern Rock sale closer as safety net removed

Feb 25 2010 by Karen Dent, The Journal

THE sale of Northern Rock by the Government has come a step closer after the lender confirmed that savers would no longer be protected by the Government’s 100% guarantee.

The guarantee on all deposits held with the Newcastle-based bank was put in place in September 2007 in a bid to halt the first run on a bank in more than a century.

But now the state-owned Rock plans to lift it on May 24, putting savers in the same position as those with deposits at other banks. It says the safety net is no longer necessary because of the bank’s strong financial position.

Northern Rock was given greater freedom to compete for new deposits at the start of the year after limitations on its share of the market were lifted. Rival banks and building societies had argued the 100% guarantee gave the state-owned bank an unfair advantage.

Once the guarantee is removed, Rock savers will be covered by the terms of the Financial Services Compensation Scheme (FSCS), offering Government protection for up to £50,000 in savings per person. However, Rock savers who took out fixed term accounts during the 100% guarantee period will retain that protection for the lifetime of the product.