Your 100% savings guarantee could cover the first £50,000

Until late last year the government operated a savings guarantee of 100% on only the first couple of thousand pounds of a savers’ money deposited in a bank or savings account. However, the crisis surrounding the stricken bank Northern Rock changed all this. Following the onset of the global credit crunch Northern Rock, which was then the fifth largest mortgage lender in the nation, ran into massive funding problems and had to take an emergency loan of billions of pounds from the Bank of England.

Once this loan became public knowledge there was widespread panic amongst consumers. Share values in Northern Rock plummeted and customers were queuing around the clock to withdraw their money from the bank, amidst fears that it was on the verge of collapse. Within a matter of a few days billions of pounds worth of savings had been withdrawn from the Rock, plunging it even further into crisis, and resulting in its eventual nationalisation earlier this year.

As a result of the situation the government decided to increase its 100% guarantee to the first £35,000 of consumers’ savings in the event of a similar situation with another bank, hoping that this increased guarantee would provide valuable peace of mind and would deter many from taking such drastic action again if a bank ran into similar problems in the future.

According to a recent report this guarantee is now being looked at again, and consumers could enjoy protection on the first £50,000 of their savings in the near future in the event that a bank falls into this sort of crisis. A proposal has been put forward and the matter is being looked into by the UK’s financial regulator the Financial Services Authority. The good news for banks is that they will not have to pay anything into the deposit fund upfront, which is a relief for most banks who have been struggling to raise finances to fund their lending operations as it is.

One official from the Treasury recently stated: “The Financial Services Authority (FSA) will explore with the financial sector ways for customers to cover amounts above the compensation limit and the appropriate coverage for client accounts and similar arrangements.”

An official from the British Banker’s Association said: “What we want is a system that works, that intervenes quickly, that frees deposits when necessary and has the ability to top up as and when required. None of that requires a pre-fund.”

However, the BBA said that around 96% of savers were already covered under the current guarantee level of £35,000, and the increased guarantee would only cover another 1% or so of savers.

One official from the BBA said: “We are happy to discuss the alternative limits with the Treasury, but 96 percent of depositors are covered right now.”

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Tags: good news, savings, deposit, relief, uk