New Guarantee Will Protect Savings
The Northern Rock debacle, when it was announced that they had taken out an emergency loan from the Bank of England, caused our nations savers to panic and queue for hours to withdraw their money from what was thought to be a sinking ship. Desperate to hold onto their hard earned money, several billion pounds was withdrawn from accounts and consumers looked elsewhere to stash their savings.
The main reason for this alarm was because most of their savings weren't guaranteed to be 100% safe, if Northern Rock had gone into administration. As the situation stood, anyone with money in accounts had a 100% guarantee for the initial £2,000 and then only 90% of the remainder, up to maximum of £33,000, which was protected under the Financial Services Compensation Scheme.The Treasury, tried to calm everyone by applying a guarantee on all their savings in order to reassure and restore order. However this only applied to Northern rock customers.
The old compensation scheme has now expanded to ensure that 100% of customers get 100% guarantee for their savings up to a maximum of £35,000. This takes place with immediate effect from 1st October 2007 and covers all banks and building societies if the worst happens and they go into administration. The government are also working on new legislation to increase this protection further and may eventually guarantee up to £100,000.
The idea is to try and reform the savings legislation and "separate savers money from the rest of a bank's assets, so that savers' money is as much protected as possible". It seems like all the stops are being pulled out to restore our faith in the banking system in the UK. I suppose the only thing the government has to be wary of is not to push savings too much and halt the growth of investments.
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