PANICKING savers and borrowers have inundated their advisers with calls after Northern Rock’s bail-out by the Bank of England triggered fears of a banking crisis.

Advisers said they had been contacted by customers from all banks and building societies, from Nationwide to the Big Four, asking if they should withdraw their savings after the Newcastle-based lender was forced to seek emergency funding to see it through the credit crunch in financial markets.

It is the first time since the 1970s that the Bank has been asked to act as a “lender of last resort” and bought back memories of the run on bank deposits in that decade. Northern Rock’s shares plunged 32%, while the banking sector as a whole was down 8.9%.

However, analysts insist there is no need to panic. The Financial Services Authority (FSA), the regulator, reassured consumers that Northern Rock remained solvent, and commentators said it was unlikely to go bust.

Customers at other banks were also reassured that they are unlikely to suffer the same problems as Northern Rock because it was unique in relying mostly on the financial markets to fund its products.

Mark Dampier at Hargreaves Lansdown, an adviser, said: “Some people are bound to think that if this can happen to Northern Rock, what about the other banks? It is easy to imagine this spiralling out of control and individuals putting their money under the mattress. But it would be a big mistake. Northern Rock is not about to go bust.”

There could even be a silver lining for Northern Rock savers. Rates on some deposit accounts have already topped 7%, and the bank will have to be competitive if it wants to pull in business.

George Buckley, economist at Deutsche bank, said: “Northern Rock needs to try to deter people from pulling their money out, as well as attracting new money to reduce its reliance on wholesale funding.”

Northern Rock has been hit hardest by the credit crunch because it gets about three-quarters of the money it lends to borrowers from the money markets, whereas other banks rely more on savers’ desposits.

Lending between banks in the money markets has all but dried up because of the American sub-prime mortgage meltdown, where hundreds of thousands of consumers have defaulted on their loans – which is why Northern Rock was forced to go cap in hand to the Bank of England.

It will have to borrow from the Bank at a punitive rate, thought to be about 7%, and chief executive Adam Applegarth has admitted this will be passed on to borrowers – though it is likely to affect the rates offered to new customers rather than existing ones.

About 80% of Northern Rock borrowers have fixed-rate deals, and can be safe in the knowledge that their rate cannot change during the term. More than 10% have tracker rates, which are directly linked to Bank rate rather than money-market rates, so they should go up only if the Bank votes to raise interest rates.

Economists said this was looking less likely as the financial-market crisis looks set to slow the economy and housing market without the need for the Bank’s intervention.

The rest of its borrowers are on the standard variable rate, which is now 7.84% and could go up – though the bank insisted it had no plans to increase it.

In the unlikely event that a bank collapsed, its mortgage book would be sold on to another institution and borrowers would simply direct their repayments elsewhere.

Savers are protected by the Financial Services Compensation Scheme. If an institution goes bust, savings up to £35,000 are protected. You will get the first £2,000 back in full and 90% of the next £33,000.

IF YOU’RE A BORROWER

Northern Rock’s rates for new borrowers are likely to go up, but most existing customers need not worry. About 80% have fixed deals, so the rate cannot change during the term. More than 10% have trackers linked to Bank rate rather than the wholesale rates that caused the crisis. Their repayments should go up only if the Bank of England raises rates. The rest are on the standard variable rate of 7.84%, which could go up – although the bank insisted it had no plans to do so.

IF YOU’RE A SAVER

Northern Rock needs to keep hold of savers’ cash to alleviate its funding crisis. With the best accounts on the market already paying more than 7%, that could mean some tempting deals. In the unlikely event that a bank went bust, up to £35,000 of your savings would be protected by the Financial Services Compensation Scheme. You would get the first £2,000 back in full and 90% of the next £33,000. Spread your savings around to beat the upper limit.

What it means for your mortgage

THE banking crisis has created turmoil in the mortgage market, with variable rates for new borrowers heading up while fixed rates are coming down.

At the same time, savers are being offered the best deals for about six years. Here, we make sense of the crisis.

What is going on?

The frenzy in the UK mortgage market stems from the crisis in America’s sub-prime housing market, where thousands of borrowers with low incomes and poor credit histories have defaulted on their mortgage payments as the rates have gone up.

The crisis has spread around the world because the institutions that initially issued the loans repackaged them and sold them to other banks and hedge funds.

It is still unclear how badly other institutions are affected and, because of the uncertainty, banks have become reluctant to lend to one another in the wholesale markets.

This has resulted in the “credit crunch” as raising funds has become more difficult.

Why does this affect variable rate loans?

Banks and building societies fund loans in a number of ways. They use the money held in savings accounts, but they also borrow from other institutions. Banks and building societies that do not have sufficient money on deposit, like Northern Rock, are having to pay more to raise funds in the wholesale markets.

The three-month Libor rate, which is the key variable rate at which banks lend to each other, has soared in recent weeks. It hit a nine-year high of 6.9% last week – 1.15 points above the Bank rate, which is 5.75%.

Will all banks be hit as hard as Northern Rock?

No. While Northern Rock gets more than three-quarters of its funding from the money markets, at Nationwide the figure is only 30%, while at Halifax Bank of Scotland it is 35%.

Other lenders are still having to put up their rates for new borrowers, though. Halifax and Abbey increased their tracker rate mortgages by between 0.1 and 0.2 percentage points last week, for example.

Will this affect my existing mortgage?

No. If you already have a tracker mortgage, the rate you pay is at a fixed margin to Bank rate, so your monthly payments will only change if the Bank of England votes to change the official interest rate.

Some borrowers have loans that are linked to their lender’s standard variable rate (SVR) as opposed to Bank rate, and changes are at the bank’s discretion.

The Sunday Times contacted the main lenders last week and they all said, including Northern Rock, that they had no plans to increase their SVR.

Fixed rates are priced in a different way to variable rate loans.

Rather than being linked to the cost of Libor, they are priced according to swap rates. These reflect the City’s view of future interest rates.

The liquidity crisis has reduced the chance of further interest rate rises, so while the three-month Libor rate has been going up, swap rates have been falling.

The cost of two-year money is now at its lowest level since May. Several lenders including Abbey, Woolwich and Leeds and Nottingham building societies have reduced some of their fixed rates.

Abbey’s two-year remortgage product has been cut by 0.15 points from 6.04% to 5.89% – this deal is only available through brokers. Woolwich, Barclays’ mortgage arm, has cut its 10-year fix from 5.99% to 5.59% and it is now a market leader.

So should I take out a fixed rate rather than a tracker?

Not necessarily. Ray Boulger at mortgage broker John Charcol said: “Borrowers shouldn’t rule trackers out. Even though some lenders have been increasing the rates, many still look attractive and, given the market conditions, you may actually be better off with a tracker.”

The likelihood of further interest rises is diminishing. Before the market turmoil, most economists expected rates to hit 6% before the end of the year. Now they think rates have peaked and some believe the MPC may soon cut Bank rate.

What about my savings?

Savers can now earn more than 7% if willing to lock money away. Stroud & Swindon building society pays 7.05% on its fixed rate bond 57 on balances above £1.

If you prefer unlimited access to savings, Bradford & Bingley eSavings account offers 6.26% on balances above £1,000.