Northern Rock was nationalised in February 2008 after it nearly collapsed because of the Credit Crunch and global financial crisis.
Virgin Money, part of Sir Richard Branson's empire, has been interested in acquiring the struggling bank since that time but only now has a deal been agreed.
Under the terms of the takeover, taxpayers stand to lose hundreds of millions of pounds: the government bailout of Northern Rock cost taxpayers £1.4billion and the bank has been sold to Virgin Money for £747million.
Virgin will pay an additional £50million six months after the sale is completed and then a further £150million. The Treasury could then get another £50-£80million if the bank is floated or sold on again within five years.
This will still mean a paper loss for UK taxpayers, but the government claims the takeover is a good deal.
The sale is expected to complete in January 2012 and Northern Rock's branches will be rebranded 'Virgin Money'.
So what will a new high street bank mean for us all?
Kevin Mountford, MoneySuparmarket's head of banking, said: "This is good news for consumers. The deal has been on the cards for a while and now that it has been finalised, it injects new competition within the banking space which can only be a good thing.
Virgin Money is an innovative brand that will now have a real high street presence, and any deal that gives consumers more choice when it comes to choosing how they bank should be welcomed."
But will more competition mean better rates?
Virgin Money may not have had a high street presence before, but it is a well known and popular brand and it has offered a number of financial products for years, some of which are competitively priced, others less so.
Its credit cards stack up well. The
Virgin Balance Transfer Card offers one of the longest 0% periods on the market. If you make a balance transfer within the first 60 days of taking the card out, you'll pay no interest for 20 months, although there is a 2.99% transfer fee.
The representative APR, which you'll pay once the
0% period ends, is 16.8%. The market-leading deal is Barclaycard's Platinum Card with Extended Balance Transfer that offers a 22-month 0% period.
Virgin Money's savings and investment products are less attractive though: Its easy-access account pays just 0.1%, while the leading deals pay around 3.00% and Virgin's FTSE All Share Tracker has an annual management charge of 1.00% - 10 times more than Fidelity's MoneyBuilder UK, another All Share tracker fund, which charges just 0.1%. So the jury's still out...
Therefore, we can't assume that Virgin Money's takeover of Northern Rock will definitely mean better deals for customers, but as part of Sir Richard Branson's stable, this is a company that will be determined to succeed and we'll have to wait to see what strategy Virgin Money will adopt to make its mark as a high street bank.
It has stated that it plans to launch current accounts in 2013, and that is an area that is notoriously difficult to build market share in because people remain reluctant to switch bank account.
So will it try and win new customers by offering products with leading rates or will it focus more on long-term value; customer service or something else that differentiates it from the competition?
It's going to be an interesting few years for banks and building societies, particularly as there are other brands waiting on the sidelines, such as Tesco, ready to take on the giants that have dominated the banking arena for so long.
We'll have to wait a bit longer for Virgin Money to show its full hand, but one thing's for sure, the landscape is changing.
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Contact MoneySupermarket.com at Moneysupermarket House, St David's Park, Ewloe, Flintshire, CH5 3UZ. © Moneysupermarket.com Ltd 2011.
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