Northern Rock has announced losses of £167.6m last year, and the implications of what lies ahead for the customers of the recently nationalised bank are becoming clearer. Savers and borrowers will both be affected by a radical overhaul.
Ron Sandler, executive chairman of the bank, confirmed yesterday that he intends to slash Northern Rock's mortgage book by half, from £107 billion to £50 billion by 2011. Thousands of Northern Rock's mortgage customers whose current fixed and tracker deals are due to end shortly have already received letters advising them to remortgage with another lender because the bank is unable to offer them an alternative product.
Savers are also being affected by the shake-up as the new management attempts to steer the bank back on course.
Northern Rock will cut the rates on its two main savings accounts – Tracker Online and Silver Savings Online – by 0.25 percentage points on Friday, taking them to 6.0%. This is the second rate reduction in less than a month: both of these accounts were paying 6.49% a few weeks ago.
This will anger thousands of savers who have recently deposited money with the bank. In a bid to stem the run on Northern Rock last September, the Government stepped in and pledged that any savings held with the bank would be totally protected – under the terms of the Financial Services Compensation Scheme only the first £35,000 of savings with any other institution is protected.
The Government's protection makes Northern Rock the safest home for savers' money at the moment. The bank has also been trying to attract retail deposits by offering some of the highest savings rates on the market. Consequently millions of pounds have poured into the bank over the past few months, so the decision by Northern Rock's new management to start slashing rates will not be welcomed.
Kevin Mountford, head of savings at moneysupermarket.com, said: "The Government guarantee will remain attractive in the current economic climate, but what price is this protection worth?
"Now that Northern Rock has started to reduce rates across its key products, there are better rates available. Anyone concerned about the security of their money could spread their savings between different accounts and ensure that they have no more than £35,000 deposited with a single institution."
Where can I put my savings?
A number of providers are offering easy access savings accounts with no catches, which pay more than 6.0%. Icelandic bank, Kaupthing Edge has the highest rate. Its instant access account is paying 6.50% on balances above £1,000. The rate is guaranteed to be at least 0.3 percentage points above Bank rate until February 2012.
Alternatively, ICICI Bank's Hisave account is paying 6.16% and Bradford & Bingley's Internet Saver 2 has a rate of 6.15%. These rates are available on balances above £1 and like Kaupthing Edge, the ICICI account comes with a guarantee: it promises to pay at least 0.3 percentage points above Bank rate until December 31 2011.
Other providers with rates above 6.0% include Citibank, L&C Investments, Heritable Bank, Anlgo-Irish Bank, Icesave and Scarborough building society.