Northern Rock boosts savings bonds rates

Following the recent announcement that the 100% state guarantee on Northern Rock savings balances would end on May 24th, it was interesting to see the bank increasing rates on its one and two year fixed rate bonds late last week.

Whilst variable rate savers are still fully protected until 24th May and existing fixed rate accounts until maturity, any new fixed rate accounts do not come with this added level of comfort.

The one year bond now offers the fourth highest rate in that particular category following a hefty 0.40% increase from 2.75% to 3.15% last Thursday. The two year bond which is not quite as competitive also saw a sizeable increase from 3.20% to 3.50%.

With the removal of the savings guarantee for new deposits, it's interesting to see these substantial rate increases from Northern Rock at a time when a number of short term fixed rates have been cut or withdrawn completely.

With new fixed rate deposits no longer eligible for the 100% guarantee, the bank now has to compete on a level playing field and will need to compete purely on rates if it is to retain and grow its savings business.

It will be interesting to see whether these rate increases will be sufficient to entice customers to remain loyal to Northern Rock with the lesser safety net of £50,000 courtesy of the FSCS, in line with the rest of the savings market.