The UK Treasury announced this morning that it will end the 100% deposit guarantee for Northern Rock Savers in three months time.
The Northern Rock guarantee, which was put in place by the British government in September 2007, will be scaled back to £50,000 per person. This is the same level of protection offered by British Financial Services Compensation Scheme to all other UK bank deposits.
Irish savers who were also protected by the 100% guarantee will see their coverage reduced to the Euro equivalent of £50,000 on May 24th. Irish customers with term deposits will remain covered by the 100% guarantee until the end of their terms.
All Northern Rock deposits are held by Northern Rock plc, which was created in January as the "good" half of the bank. The UK government intends to sell Northern Rock plc and the removal of the blanket guarantee is designed to see how the bank performs without unlimited protection.
Savers with qualified Irish Financial Institutions currently have unlimited protection for their deposits until September 2010 when the guarantee is expected to be reduced to €100,000.
Northern Rock could expect to lose some Irish deposits as savers seek higher interest rates and a higher guarantee but Northern Rock is now seen as a stable institution with high levels of liquidity. Northern Rock cut interest rates on their Demand Online account to 2.5% this month - down from 3.0%.
Commenting today, David Kerr, managing director of bonkers.ie said "While Northern Rock is now seen as strong enough not to need an unlimited guarantee, Irish savers can still take advantage of 100% protection at home. Irish banks are also offering strong rates on demand accounts so it worth shopping around for the best deals and better deposit protection".
Northern Rock has written to Irish customers to inform them of the changes.