Should you put your money into the Rock?

It's offering some very competitive deals, but is it safe to invest in this troubled bank? James Daley finds out

(AP)

The nationalisation of Northern Rock will arguably make it the safest place on the high street to put your money. Aside from National Savings & Investment, it will become the only bank to have an unlimited guarantee on all savings – while other banks and building societies will only guarantee the first £35,000 of customers' deposits if they ever go to the wall.

In reality, however, the outlook for Northern Rock and its customers still remains uncertain. While the Government has set in motion the wheels of nationalisation, it has made it clear that it plans to pass the bank back into private ownership at the earliest possible opportunity. There are a number of ways it could achieve this – and not all of them will be good news for all of the Rock's customers.

A sale of the entire bank as a going concern would probably work out best for most customers. However, it seems more likely that the Government will end up selling off the bank bit by bit, potentially closing down parts of the business along the way. Here we take a look at each of the bank's different products, and the implications of the nationalisation for new and existing customers.

SAVINGS

Northern Rock's savings accounts are now paying some of the best interest rates in the market. Its over-50s account, for example, tops the best buy tables with a rate of 6.5 per cent, while its online tracker account is just 0.01 percentage point behind its best competitor, paying 6.49 per cent. In fact, most of its accounts are at, or very near, the top of the best buy tables.

If you've got more than £35,000 to invest, Northern Rock is certainly worth considering as a home for your money. As long as the bank remains in public ownership, you'll benefit from the 100 per cent unlimited guarantee on your savings and, unlike the other publicly owned savings bank, National Savings & Investment, you'll also have the luxury of branch access.

Although the unlimited guarantee cannot remain in place for ever, any buyer is likely to insist that it at least remains for a transitionary period to prevent a flood of customers leaving. Therefore, you should have plenty of time to move your money elsewhere if you want to, should the bank be sold. The future of the branch network, however, is not nearly as certain. It is still a distinct possibility that the new public-sector management may choose to close all the branches to cut costs.

To find the best savings rates, visit www.moneyfacts.co.uk.

CURRENT ACCOUNTS

Northern Rock's current account is uncompetitive, paying credit interest of just 0.1 per cent on any balances. Once the bank is nationalised, however, it will be the only current account to offer an unlimited guarantee.

Although this may at first sound attractive, it's worth remembering that if you like to keep large balances in your current account, there are many better, higher-interest products elsewhere – all of which still guarantee the first £35,000 of any balances.

If you do decide to open a current account with Northern Rock – or you're an existing customer – you should be prepared for the possibility that the new management closes down this division of the bank, forcing you to switch elsewhere. Although changing current accounts is not as difficult as it used to be, it's a hassle, and there's always a chance that one of your direct debits or standing orders will not be successfully transferred.

If the bank sells off the current account division, it's also possible that you'll find yourself caught up in a systems transfer.

Julia Harris of Moneyfacts.co.uk, the comparison site, says there's very little reason to keep your current account with Northern Rock. "If you're looking for a current account, you'd be much better off seeking out one of the big banks, if you want security, or looking for an account with good credit interest," she says. "The big banks are still relatively safe when it comes to current accounts."

To search for the best current accounts in the market, visit www.moneyfacts.co.uk.

MORTGAGES/LOANS

Although Northern Rock still claims to offer loans, mortgages and equity-release products, these are now priced so uncompetitively that it is hard to believe that anyone is applying for them.

The bank's two-year fixed-rate mortgages, for example, are well over 1 percentage point above base rate, and come with hefty fees. While its unsecured loans are priced at 12.9 per cent – almost double the best rates available in the market, which are currently under 7 per cent.

Futhermore, the bank is unlikely to be taking on anyone but those with the very best credit ratings. If you fall into that bracket, you could undoubtedly find a much better deal elsewhere.

The bank's already writing to existing customers, encouraging them to go elsewhere when they come up to remortgage – which tells the whole story.

To look for the best mortgages in the market, visit www.mform.co.uk, or for loans, visit www.moneyfacts.co.uk