What protection do savers have ?

So the Government have promised all existing Northern Rock savers that their money is safe. But what protection do savers have in any case?

The Financial Services Compensation Scheme covers 100% of the first £30,000 and 90% of the next £20,000 of an investment or savings plan if the firm who provided it is unable to meet its obligations. However 'deposits', i.e bank and building society accounts, are only covered for 100% of the first £2,000 and 90% of the next £33,000.

There are rules though, and some investors/depositors are not covered - the full FAQ is available here : http://www.fscs.org.uk/consumer/faqs/.

So if you have £75,000 in a savings account and the bank goes bump, assuming you meet all the criteria you would be covered but only for £31,700.

Similar protection schemes cover other types of financial products, including the Policyholders Protection Act.

It is very unlikely in any case that the Government would allow Northern Rock to fold - this would destabilise the banking system and cause havoc with the economy. One investor was quoted as saying that he didn;t trust the Government promise, and was therefore withdrawing his funds and reinvesting them into gilts (which are Government stock, and certainly aren't as safe as a bank account!)

To get back to basics, any saver or investor should be aware of the risks involved with any investment - even a savings account can lose you money if it is paying a rate if interest which is less than the rate of inflation (and it's surprising how many are!). If prices are rising by 3% and you are only receiving 2% interest, the net result is that your money is falling in value by 1% per annum. Put it under the bed, and you lose 3% per annum in this scenario!

Our advice is always to assess the level of risk you are prepared to take with funds, via a risk profiling exercise, and then take advice as to an investment which matches this level of risk. We can assess risk, make recommendations and manage funds on an ongoing basis - better than sleepless nights!