Are your savings really safe with Northern Rock?

By Fergal Barry-Murphy. Published on February 20, 2008 This post currently has no comments.

Northern rock branch

The ongoing Northern Rock saga took another significant turn on Sunday as the Government announced that the bank is to be nationalised. This was devastating news for shareholders, while it has caused more jitters among savers. We take a look where your Northern Rock investments stand.

If you have savings with Northern Rock, the last few months have probably been a bit edgy for you. However, the good news is that the nationalisation of Northern Rock will most likely work in your favour. For a start, the bank and your savings will be backed by the British Government, and you can't really ask for more solid backing than that. What it essentially means is that the Government's guarantee arrangement regarding savings is now extended indefinitely.

In addition, once nationalisation is complete, the Government will be keen to turn the fortunes of the bank around. To do this, it will need to keep its existing retail customers and attract new ones. Northern Rock already offers some of the most attractive rates on savings accounts on the market, while there could be even better rates on the way. In fact, Northern Rock is already offering a 0.5% interest bonus to savers who keep their savings with them intact between December of last year and March 2008. If you are not already a Northern Rock saver, you might do well to keep an eye on rates in the coming months.

While nationalisation of the bank is probably the best possible outcome for savers, some uncertainty remains. Even the bank's new executive chairman Ron Sandler admits that the current rescue plans do 'carry risk'. So, if you are still nervous about where to invest your cash in the current climate of uncertainty, it may be a good idea to spread the risk.

“The 'shoebox under the bed' option may be tempting right now but it's important not to panic, and instead ensure your savings are spread between as many institutions as possible to negate risk,” says Kevin Mountford, head of savings at moneysupermarket.com.

Shareholders

If you still have shares with Northern Rock, there really isn't much good news. Since the bank first announced that it was in trouble in the latter half of 2007, its share price has plummeted from around the £12.50 mark to 90 pence on Friday. There will be some compensation, but nobody can say how much at this point. However, there have been reports that some major stakeholders are looking for something around the 400p per share mark. So, for the time being your best strategy is probably to sit tight and see how it unfolds.

Mortgages

If you have a mortgage with Northern Rock you can expect business as usual in the coming months. As mentioned earlier, the new nationalised Northern Rock will keen to keep customers and gain more, so there may be some competitive mortgage rates and products available from the bank.

So, the real losers in in this latest development are Northern Rock's shareholders. The extent of losses will depend on any compensation deal. Meanwhile, nationalisation should reduce some of the uncertainty for savers and mortgage holders, and may even turn out to be a good thing. However, we would advise that you continue to monitor the situation.

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