Government-owned Northern Rock is scrapping its 100% savings guarantee, it announced this morning.
All new accounts will have the standard £50,000 per person, per financial institution protection if the bank goes bust rather than having any balance shielded (see the Safe Savings guide).
Existing savers on variable rates will revert to that £50,000 assurance afforded by the Financial Services Compensation Scheme (FSCS), on 24 May (see the Rock protection to go MSE News story guide).
Anyone on a fixed rate deal will maintain their 100% guarantee until the account's maturity date.
The cast-iron guarantee was introduced by the Chancellor on all Northern Rock deposits following a run on the bank in 2007, which eventually saw it taken into Government hands. The decision to scrap the full protection was taken by the Government.
Northern Rock chief executive Gary Hoffman says: "This is another positive step in the right direction and the decision reflects our good progress and the strong capital position of Northern Rock.
"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 sale
The move is seen as another major milestone in the upcoming sale of Northern Rock. This follows its split in two on 1 January 2010, when it spun off a savings and mortgage bank called Northern Rock PLC, effectively the "good" part of the bank which will be sold off to the private sector.
Tesco and Virgin Money are thought to be two of the suitors lining up a bid.
What next for savers?
Martin Lewis, MoneySavingExpert.com founder, says: "This is an understandable move. While the spin that it's business as usual again is fair, in practical terms this is a loss of protection for savers.
"However, the real protection savers have, even without the full guarantee, is it would be ludicrous for the Government to flog this bank to a company that would allow it to go bust. If it did, it would call into question our entire method of government.
"Yet for belt, braces and buckles if putting cash in Northern Rock, like anywhere elsewhere, if you're saving over £50,000, spread it around institutions so more of it is protected.
"However, the big clarion call here is that those who put their money in Northern Rock purely for 100% safety, and sacrificed getting a decent rate, should take notice.
"That safety bonus is disappearing, so you may as well push to earn more interest. Review your rate and see if you can get more elsewhere but ensure you're not over thew £50,000 limit."
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