How the Yorkshire and Chelsea building society merger will affect you

The Yorkshire Building Society has announced it is going to buy the Chelsea Building Society, to create a large mutual with £35bn in assets. The merged group will be second in size only to Nationwide, Britain's biggest building society. The merger will have to be approved by eligible members, but the deal should be completed on 1 April next year.

The merger has come after a bad year for Chelsea. It made a £19m loss in the first half of the year after being hit by a £41m mortgage fraud and a £55m exposure to the failed Icelandic banks. It follows in a long line of societies that have disappeared in recent months as the sector has consolidated. But what does all this mean for customers?

Over the next two weeks, members of both building societies will receive a letter of explanation and a voting form. In order for the merger to go ahead, at least 75% of savers and 50% of borrowers must vote in favour of it. If that happens then it will go to the financial regulator, the Financial Services Authority for approval. If it all goes ahead and the merger takes place, customers of both societies will notice very little difference. The group as a whole will become known as the Yorkshire Building Society, but the Chelsea brand will be retained. At present there are no plans to merge the two product ranges.

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The merger will affect savers' coverage under the Financial Services Compensation Scheme (FSCS), but not immediately. Savings with either society will have coverage up to £50,000 each so £100,000 in total until 30 December 2010. But new accounts will only get the normal coverage of up to £50,000 in accounts across both building societies (in other words, if you had £30,000 with one and £30,000 with the other, £10,000 would be vulnerable should the society run into trouble).