Yorkshire Building Society has agreed a deal to take over the troubled Norwich & Peterborough Building Society (N&P) by the end of the year.
With Yorkshire being the UK's second largest building society and N&P the ninth largest, the proposed merger will create an enlarged society with three million members and 224 branches.
The deal comes a few days after N&P was fined £1.5 million by the Financial Services Authority (FSA) for failing to give suitable advice to customers who invested in Keydata products.
It has set £51 million aside to reimburse affected customers with Yorkshire confirming it will honour in full the compensation payments programme previously announced by N&P.
Although the new society will be called Yorkshire Building Society, the N&P brand will be retained as a separate brand.
It is intended that a high street presence will be retained in all communities where either the Yorkshire or N&P currently have a branch.
As part of this commitment, Yorkshire says all N&P's existing branches will be maintained for a minimum of two years.
The focus of the combined society will continue to be on residential mortgages and savings.
As a result of the deal, members who are savers with both the Yorkshire (or any brand of the Yorkshire, including Chelsea and Barnsley building societies) and N&P at the time the merger completes, will be limited to one FSCS depositor protection limit of £85,000 per individual - £170,000 for joint accounts.
However, it has been confirmed that savers who exceed this amount as a result of the proposed deal will be allowed to reduce their combined balance without having to give any notice or without any loss of interest on the amount withdrawn.
It has also been confirmed that borrowing members on N&P's Standard Variable Rate (SVR), which currently stands at 5.35%, will see their rate equalised with that of the Yorkshire SVR, which is 4.99% at present.
Other than the move with regards to SVRs, however, there will be no changes in respect of interest rates of savings accounts or mortgage accounts.
Although the merger is subject to final agreement by the boards of both societies, and approval by the FSA, the deal is expected to be completed on 1 November 2011.
Iain Cornish, chief executive of Yorkshire Building Society, said N&P's traditional building society activities remain profitable and it is well regarded in the communities it serves in the east of England.
"We will build on N&P's strong brand and the value it has delivered to its members, while gaining the opportunity to consider developing our own products in areas where N&P has complementary capabilities and expertise, such as the current account market," he added.
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