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Northern Rock Savers Lose Their Guarantee

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Millions of savers with Northern Rock will lose the unlimited guarantee on their deposits after the Government lifts the measure on all variable-rate accounts today.

The move, which brings the bank in line with its competitors, reduces the guarantee to the first £50,000 for each customer under the Financial Services Compensation Scheme. Existing fixed-rate accounts will continue to benefit from the unlimited guarantee until their agreed term expires. Bankers and wealthy savers poured in billions of pounds in bonuses and savings when the guarantee was announced. The bank has introduced a string of new savings deals in recent days to try to retain them.

Research by Moneyfacts shows that Northern Rock has significantly improved the competitiveness of its accounts since the beginning of the year. The bank is promising 5 per cent on a new regular saver account introduced last week. It is the market-leading rate among accounts that are not restricted to existing customers. It is also in the best-buy tables for fixed-rate bonds.

Michelle Slade, of Moneyfacts, said: “Northern Rock appears to be trying to attract new business to maintain its savings book because it is worried that customers might switch to more competitive deals when the guarantee is lifted.”

A spokesman for Northern Rock said: “The removal of the guarantee is another positive step for Northern Rock and reflects our strong capital and funding position. We are returning to a level playing field.”

Savers continue to be offered interest rates considerably higher than the Bank of England base rate of 0.5 per cent as lenders compete to attract deposits to fund new mortgage lending. Coventry Building Society, Britain’s third-biggest mutual, is offering 3 per cent on its easy access account, while the Post Office is paying 3 per cent on a fixed-rate cash Isa. Some overseas banks are offering returns above 4 per cent.

Andrew Hagger, of Moneynet.co.uk, a comparison website, said: “Savers continue to benefit from higher returns if they are willing to lock away their deposits for the longer-term.”

The Government introduced the emergency guarantee in 2007 after Northern Rock suffered from the first run on a bank in more than a century. The explicit guarantee on all savings reversed the £14 billion decline in deposits and persuaded many savers that Northern Rock was one of the safest places to deposit cash.

Ben Yearsley, of Hargreaves Lansdown, an independent financial adviser, said: “The guarantee, com-bined with competitive savings rates, prompted a broad range of canny savers to move their money to what became a safe haven.”

Last year the Government divided Northern Rock into a “good” bank, Northern Rock plc, and a “bad” bank, known as Northern Rock Asset Management, in a move seen as preparation for an expected sale of Northern Rock plc to the private sector this year.

The new plc has a savings book worth £19 billion, with total mortgages outstanding of £10 billion.

All the right noises, although I can hear an oink or two....

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All the right noises, although I can hear an oink or two....

wow..... a savings book WORTH 19bn.

and a mortgage book of 10bn

shame that the savings book is a LIABILITY and the mortgage book is the ASSET.

9 bn insolvent already....thats good going.

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  • 395 Brexit, House prices and Summer 2020

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      • down 5% +
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