The rates are great but the future isn't Rock-solid

Some of the best deals around are now backed by government ownership. Experts warn, though, that they may not last. By James Moore
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The Independent Online

A key message to come out of last week's nationalisation of Northern Rock is that it could be very good news for savers.

The theory goes that Northern Rock, desperate to attract customers to rebalance its finances, can dangle great deals that now have the added attraction of being backed up by government ownership.

No wonder there have been rumblings of discontent from rival banks, which fear savers will rush to invest with a "gilt-edged" bank.

There are certainly some juicy deals. Two of Northern Rock's savings products – a one-year fixed-rate individual savings account (requiring a minimum deposit of £500) and an over-50s online account – are among the best available anywhere and many of its other accounts are highly competitive.

"There are some very impressive rates from the Rock. Ever since the crisis in September, it has been trying to get into the 'best buy' tables," says Julia Harris from the comparison service Moneyfacts.

But experts warn that there could be a sting in the tail. They fear that the bank's current strategy of reducing its mortgage business – to free up funds to meet its debt to the Treasury – by offering poor deals will lead to an exodus of the least risky borrowers. The bank would then be left with only those customers whom other lenders won't touch.

"It could start to look like a company offering redundancies," says Ray Boulger at mortgage broker John Charcol. "The best people, who can get new jobs, leave and the people who can't move on stay put."

That could threaten Northern Rock's financial stability and it is significant that credit agency Moody's rates the bank's creditworthiness for depositors at two levels below government debt. In other words, money deposited with Northern Rock is not considered as safe as cash invested in government bonds.

Moody's admits nationali- sation will "provide greater security" for depositors but says "any significant improvement in the intrinsic strength of the bank is likely to be a slow process". It also points to "the uncertainty around the government guarantee".

And that is why savers keen to take advantage of good deals offered by the Rock need to keep an eye on developments.

"The structure of the bank is changing and who knows what its approach to savers will be a year or two down the line," says Ms Harris. "It wouldn't be wise for people to sink all their money into Rock accounts."

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