Rock's 100% deposits guarantee to be removed

THE 100 per cent guarantee on deposits held with Northern Rock will be lifted in three months, the Treasury said yesterday.

Confirmation of the move comes as the UK government prepares to return the nationalised bank to the private sector.

Once the guarantee is removed on 24 May, customers will revert to the same level of protection offered to all UK savers, where only the first 50,000 is insured by the government. Fixed-term deposits will be guaranteed to maturity.

City minister Lord Myners said the move showed how far the restructuring of the bank had come. He added: "Depositors can have confidence in Northern Rock."

The deposit guarantee was put in place as a temporary measure to shore up confidence in the beleaguered lender after it suffered the first run on a UK bank in more than a century.

The bank became one of the first victims of the credit crunch and was taken into public ownership in 2008.

Savers were thrown into panic as news emerged that it had sought emergency funding from the Bank of England, and the deposit guarantee was used to calm nerves.

The bank now comprises about 19 billion in retail savings and 10bn in residential mortgages, which is seen as an attractive leg-up for those looking to enter the UK banking sector.

Virgin Money is widely seen as a front-runner to buy the bank, having launched a failed bid for Northern Rock before it fell into public hands.