Societies welcome the lifting of Northern Rock's guarantee

BUILDING societies yesterday welcomed the decision to lift the unlimited guarantee on Northern Rock deposits as a "significant step" towards returning the cash savings market to a level playing field. The Government has reduced the guarantee to £50,000 for variable rate customers under the terms of the Financial Services Compensation Scheme. It introduced the safeguard in 2007 after a run on the bank.

This led to an increase in deposits by wealthy savers to the detriment of building societies, which have traditionally depended on retail deposits to fund their business models.

A spokeswoman for the Building Societies Association told the Yorkshire Post: "The guarantee allowed Northern Rock to compete unfairly and caused distortions in the savings market for building societies and other providers that did not receive this direct support from the state.

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"In the longer term, we believe there is a strong case for returning Northern Rock to the mutual sector, encouraging diversity, competition and a more prudent approach to business than might otherwise be achieved."

People with fixed-rate deposits will continue to benefit from the unlimited guarantee until their product matures, as long as they invested the money before February 24.