Plans to end the 100% safe savings guarantee protecting Northern Rock savings accounts have been made official.
N.b. This article was published prior to the increase in FSCS coverage from £50,000 to £85,000.
Now all savers with Northern Rock will be protected up to a total of £85,000 - this applies to the total balance across all Northern Rock accounts, as it is a 'per insititution' and not a 'per account' limit.
Accounts held in joint names will be protected up to a total combined balance of £170,000.
After a review of the bank's capital and funding position the Government and Financial Services Authority (FSA) have together agreed that the all-inclusive savings guarantee is no longer necessary.
However, as we've said before, there is no need to panic if you have savings with the nationalised bank. Removing the guarantee is not a decision that would have been made if there was any uncertainty over Northern Rock's financial stability.
What's more, the vast majority of savers will remain unaffected by this change as the FSCS's (Financial Services Compensation Scheme) safety guarantee on balances under £50,000 will step in to provide cover. This will bring the protection available for Northern Rock savings accounts in line with that offered by other banks and building societies in the UK.
Northern Rock have confirmed the following:
- Existing variable rate accounts will continue to be protected by the 100% safety guarantee until 24th May, 2010. After this date balances up to £50,000 per person (£100,000 for couples) will be covered by the Financial Services Compensation Scheme.
- Existing fixed term accounts taken out prior to 24th February, 2010 will continue to be protected by the 100% safety guarantee until their agreed term comes to an end. After which the guarantee in place will switch to that offered by the FSCS.
- New savings accounts will be covered by the Financial Services Compensation scheme up to a maximum of £50,000 per person (£100,000 per couple).
What does this mean for my savings if I have:
Less than £50,000 in a variable rate savings account with Northern Rock?
If you have less than £50,000 in savings in variable rate accounts with Northern Rock then this decision will not affect your accounts in any notable way. This is because your savings will continue to be fully protected (providing they total under £50,000) by the Financial Services Compensation Scheme.
It is, however, worth reviewing the rate of interest that you're earning on your savings and moving your money if you can get a better return elsewhere.
More than £50,000 in a variable rate savings account with Northern Rock?
If you have more than £50,000 in variable rate accounts with Northern Rock then you may want to look at moving anything over this amount to a different bank or building society before the 100% safety guarantee ends on 24th May, 2010.
Spreading your savings between accounts so that you do not hold more than £50,000 with any separately FSA registered financial institution is the best way to ensure that should the worst happen, your savings will be fully covered by the Financial Services Compensation Scheme.
Savings in a fixed term account with Northern Rock?
If you have savings in a fixed term account then there is no need to do anything until your account matures. This is because the goverment have confirmed that any amount invested in a fixed term savings account with Northern Rock prior to 24th February, 2010 will continue to be fully protected until the account's maturity date. This protection applies whether you have over, or under £50,000 in an existing fixed term account.
However, once the account reaches maturity the government's guarantee will end and the FSCS's guarantee on balances up to £50,000 will step in. Therefore, it would be prudent to look at reviewing where you house your savings so that they continue to be fully protected and earn you the best return possible.
This may mean splitting your money between accounts with different FSA registered financial institutions if you have more than £50,000 in savings. Or, if you hold less than £50,000 in savings, moving your money to the account that offers you the best return.
Is it safe for new savers to save with Northern Rock?
Yes, it is safe to open a new savings account with Northern Rock, providing you deposit less than £50,000 (£100,000 in joint savings) with the bank. This is because any savings you hold up to this amount will be fully protected by the Financial Services Compensation Scheme.
