The Government will sell Northern Rock to Virgin Money, to create a combined bank with four million customers.
The acquisition, expected to be complete on 1 January, will see the entity called Virgin Money, with all 75 Northern Rock branches re-branded accordingly, though this exercise could take months.
It will cost Richard Branson-owned Virgin an initial £747 million. That figure could top £1 billion in future.
The Government's hope is it will add to competition on the high street as a challenger to the traditional banking giants. Virgin plans to offer current accounts to add to the portfolio of savings, mortgages, insurance products, investments and credit cards the combined bank will hold.
Virgin is only buying the 'good' part of the Northern Rock, Northern Rock PLC, after the company was split in 2010 between a savings and mortgage arm and the 'toxic' side of the business which contains loans and mortgages that many borrowers have struggled to pay.
The latter unit, Northern Rock Asset Management, will remain in government hands.
Virgin has courted Northern Rock for years ever since the run on the bank in 2007, which marked the first major UK evidence of the credit crunch, that forced its near collapse.
It tried to buy the beleaguered firm before it was eventually nationalised in February 2008.
Here's what the sale means for Northern Rock customers.
Rates to remain the same for now
There will be no change to savings or mortgage rates or other terms and conditions for now. However, banks can tweak variable rates at any time so no long-term guarantee is possible.
Virgin has some of the best credit cards available, including a 20-month 0% balance transfer deal with a 2.99% fee and a plastic that offers 0% on spending and 0% on transfers (2.89% fee) for 13 months. However, it pays a miserly 0.1% on savings.
Northern Rock offers the top easy access cash Isa, the Online Isa, at 3.05%. It also offers the top easy access children's savings account, the Little Rock Access Account, at 3%.
£85,000 combined savings safety limit eventually
The combined bank will only have one set of £85,000 per person protection in case it goes bust once it is fully integrated. However, this will only happen once the re-branding is complete at an undefined point in 2012.
At present, Northern Rock and Virgin Money savers have £85,000 protection in each.
However, the impact of the merger is expected to be small on customers' savings protection given Virgin says it has a tiny savings book, so very few customers will have more than £85,000 in both institutions.
All Northern Rock savers used to have 100% protection on all their cash as part of the nationalisation, but this ended in 2010, bringing Northern Rock in line with other banks and building societies.
The exception is for those who took out a fixed rate bond before 24 February 2010 who will maintain 100% protection until maturity.
Account access to remain the same for now
Consumers can access their accounts in the near future, though this could change once the re-branding exercise happens next year.
Impact on branches
Virgin has promised to maintain the 75 Northern Rock branches, though if it becomes a high street giant, it could create, or buy, more hubs.
Chancellor George Osborne says: "The sale of Northern Rock to Virgin Money is an important first step in getting the British taxpayer out of the business of owning banks.
"It represents value for money and will increase choice on the high street for customers."