Millions of Royal Bank of Scotland (RBS) and Lloyds customers will be affected by the announcement today that the banks are to sell hundreds of their branches.

Homeowners whose mortgage is with Cheltenham & Gloucester, savers with Intelligent Finance, and insurance customers of Direct Line, Churchill and Privilege will all see a change in their provider within the next four years.

We explain how the latest shake-up of the UK banking industry will affect you.

What is happening, and why?

The European Commission has demanded the sale of parts of RBS and Lloyds amid concerns that the Government bailouts would stifle competition. The state currently owns 43.5 per cent of Lloyds and 72 per cent of RBS.

RBS will sell 318 branches and Lloyds will dispose of more than 600 branches over the next four years.

Will customers of RBS or Natwest be affected?

Some will yes. RBS branches in England and Wales will be sold, as well as the NatWest branches in Scotland. This will affect 1.7 million customers as well as 230,000 small or medium sized businesses. The Williams & Glyn’s brand name, which was phased out 24 years ago, is also up for sale.

While a buyer is found the branches will stay open and telephone and internet banking will operate as normal. RBS says it is “business as usual.”

A spokesman added: “We will seek to ensure that any disruption associated with the restructuring is minimised and will keep our customers fully informed as the divestment process proceeds.”

What about RBS’ insurance customers?

RBS estimates it has around 17 million insurance policies in place through its various brands, including car, home and life policies. Customers of Direct Line, Churchill and Privilege will be affected, as well as businesses who bought insurance from NIG and motorists whose breakdown cover is with Green Flag.

Again, RBS says it is business as usual for insurance customers until a buyer is found.

Will customers of Lloyds be affected?

Some will yes. All Lloyds TSB Scotland branches will be sold, as well as some Lloyds TSB branches in England & Wales. All Cheltenham & Gloucester branches will be sold as well. However, a spokeswoman for Lloyds said that there would be little more information for customers until a buyer is found.

She said: “As the timings for these sales would be within four years, there will be no immediate change for any customers. It's very much business as usual.

“When a sale is agreed, we will ensure that the transfer of customers is handled with sensitivity and care and that any disruption is minimised.”

What if I have a mortgage with Cheltenham & Gloucester (C&G)?

Customers that have opened a savings account or taken out a mortgage through a Cheltenham & Gloucester (C&G) branch will continue to have access to that branch. They will also be able to service their accounts through Lloyds TSB branches. The previously announced closure of C&G branches is no longer happening.

If you have a fixed rate mortgage, C&G’s new owner will not be able to change your terms and conditions. However, C&G has one of the lowest standard variable rates (SVRs) on the market - it is guaranteed to be no more than 2 per cent above the Bank of England base rate. The new owner may be able to change this unless the rate is stipulated in your mortgage contract.

What if I have an account with Intelligent Finance (IF)?

Intelligent Finance customers will continue to have access to their accounts via the internet and phone. Once the sale has been agreed, IF customers will be transferred to the new owner. A spokeswoman for Lloyds said: “We anticipate that this will be done with minimal disruption to the services currently received.”

As with mortgages, if you have a fixed-rate savings account the new owner will be unable to change your interest rate before the account is due to mature.

Does this affect the Financial Services Compensation Scheme?

Not immediately. Lloyds TSB, Lloyds TSB Scotland and Intelligent Finance will continue to be covered separately under the Financial Services Compensation Scheme (FSCS). C&G deposits are covered under the same banking licence as Lloyds TSB.

The FSCS protects up to £50,000 (or £50,000 each for joint account holders - £100,000 altogether) of the deposits in savings and current accounts with each separately licensed bank.

Once the sales are agreed, customers would be advised to check how they will be covered under the FSCS.