Get moving to ensure ALL your savings are safe
DO YOU remember what you were doing that fateful day about eight years ago when the BBC’s then business editor Robert Peston (in his cropped hair and tie-wearing days) revealed that Northern Rock was in serious trouble?
Not quite as terrible as the moment President Kennedy was shot or as the Twin Towers attack, I admit, but that day marked the start of banking and economic turmoil in Britain that we are all still feeling the effects of today.
If you were a saver with the troubled Newcastle-based bank you might have joined the queues snaking outside its branches to withdraw savings before, as many then feared, the bank disappeared along with your life savings.
I was initially blissfully unaware of these events, having arrived that day – Thursday, September 13 – in France with girlfriends for a short break to get away from it all.
The tranquillity was interrupted early on Friday by a text from my other half at home. ‘Just as well we don’t have savings in Northern Rock,’ he messaged. On the contrary, I responded, nearly all my savings were there. This was by default because a couple of years earlier it had bought up the savings book of Goldfish, a now defunct credit card firm that had also at one time offered attractive savings deals.
The following Monday, back at home, I joined the phone queue to get my money out. I felt sorry for the friendly woman who took my call and whose job was almost certainly teetering on the brink.
But the Bank of England had at that point not confirmed it would step in to save Northern Rock and I was as nervous as the next saver that my nest egg would evaporate.
Had the bank not been rescued, savers would in theory have been entitled to receive compensation via the Financial Services Compensation Scheme of 100 per cent of the first £2,000 and 90 per cent of the next £33,000 of their savings – a maximum of £29,900, no matter how much they had.
The crisis that the Northern Rock debacle set off contributed to a change in the rules and in savers’ habits: bank customers started to spread their savings – and current account balances – around different providers.
The FSCS limits were also raised to reassure account holders, first to £35,000, then £50,000 and in 2010 to £85,000 – double for joint accounts. In addition, temporary large balances of up to £1million, such as from the sale of a home, are now protected for up to six months. But a European directive says the standard account limits must be the equivalent of €100,000 for all the region’s savers, which is recalculated every five years.
A strong pound means this limit will fall in January to £75,000 – or £150,000 for joint accounts. However, it appears few of us know about the changes. A poll by challenger bank Aldermore published last week found that nearly two-thirds of savers are not aware that the limit is being cut.
Banks and building societies are trying to rectify this by writing to and emailing customers. And many, such as Nationwide and Halifax, will allow customers to make a one-off withdrawal of cash penalty-free from accounts (including notice and fixed-rate accounts) to bring them within the protection level, so long as they take this action before January.
Savings experts have so far not seen much in the way of pre-emptive withdrawals.
Kevin Mountford, for one, at savings comparison service MoneySupermarket, puts this down partly to the relatively low number of savers with big balances. But he also blames apathy. He told me: ‘There is a feeling of inertia in the market. We have seen rates rise in the fixed-rate bond and easy-access savings categories in recent weeks, but there is still little activity from savers.’
Although he suspects more big savers will act to cut their balances as the deadline looms, he believes what is more important is for them to get into a routine of seeking out better rates on their money.
Independent think tank The Social Market Foundation thinks the same and that more should be done to nudge consumers into switching all kinds of financial products.
In its Should Switch, Don’t Switch report, backed by comparison website comparethemarket, to be launched at the Conservative Party conference tomorrow, it recommends the Government implements an Active Consumer Week every January, to prompt us into action while New Year’s resolutions are in our minds.
Active Consumer Week is a good idea. Although if thousands of people hit the phones to switch accounts they could find the lines already jammed – with customers of the same organisations rushing to make PPI misselling claims. City watchdog the Financial Conduct Authority said last week a deadline on claims could apply as soon as April 2018.
Nearly two-thirds of savers are not aware that the protection limit is being cut