Northern Rock’s 100% government savings guarantee has today been withdrawn, leaving customers with the standard Financial Services Compensation Scheme (FSCS) protection that would shield £50,000 of their savings in the event the bank went bust.
The Financial Services Authority (FSA) and the Labour government decided in February that the guarantee of 100% of Northern Rock customers’ money was no longer needed, and announced their intention to reduce the protection for savings held with Northern Rock from 24 May.
Up until the decision to scrap the special savings guarantee was announced, some consumers had chosen to place large sums of money with Northern Rock – in the knowledge that they could not safely hold such sizeable deposits with other financial institutions.
As of today, however, Northern Rock must compete for savings customers on the same footing as other banks and building societies – and savers who hold more than £50,000 with the bank will need to find an alternative home for each £50,000 worth of savings, if they want to be sure they have full protection.
Santander savings protection
Consumers who hold both Alliance & Leicester and Santander savings accounts will also need to revisit how their money is protected this week.
Santander, a Spanish bank, took over Alliance & Leicester as well as Abbey and Bradford & Bingley during the banking crisis. It began re-naming Bradford & Bingley and Abbey branches at the start of 2010 and is soon to complete the re-branding process by subsuming Alliance & Leicester.
Crucially, Alliance & Leicester’s banking licence – currently separate from that which covers Santander, Cahoot and Bradford & Bingley – will disappear on 28 May. From that date, Santander will operate a single banking licence and its customers will therefore benefit from just £50,000 worth of savings protection under the FSCS.
If you have more than £50,000 combined in Alliance & Leicester and Santander accounts, it’s important to remind yourself of the FSCS rules and find a suitable savings account to hold your ‘excess’ funds.
Santander says it will allow customers to withdraw money so that they do not exceed the FSCS protection limit, even if notice would normally be required or a penalty imposed.
Financial Services Compensation Scheme
Which? Money editor James Daley said: ‘The FSCS can seem complex. While it’s simple to remember that £50,000 per person, per institution is protected, the difference between banking brands and institutions is not always understood.
‘If you want to be sure your money is as safe as possible, it’s vital to make sure you know which banking brands count – in some cases quite unexpectedly – as single institutions. The Which? guide contains a list of which banks share licenses, to help you spread your savings and obtain maximum protection for your money.
‘From Friday, Alliance & Leicester will fit into this category – so customers who also have savings with Santander (including old Abbey and Bradford & Bingley deposits) should check to make sure they are still within the £50,000 protection limit.
‘Similarly, Northern Rock customers should check the balances of their accounts and shift savings to other institutions if necessary. Our Savings account review, Cash Isas review and Fixed rate savings review should help you to choose a new account if you need one.’
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