Question of the Week: Would all my £400,000 savings be safe in Northern Rock?

Former_MSE_Natasha

Q. I've £400,000 to save securely for a few months. Is Northern Rock safe as it's Govt owned? Or does the £50,000 limit still apply? Claire Nash, by email

Martin's A. Both. Like all UK savings, if NR went bust up to £50,000 per person per institution's guaranteed by the Financial Services Compensation scheme (FSCS), see the Safe Savings guide for more.

Yet in this case that's mostly irrelevant. NR's owned by the Govt. and that's as safe as it gets (if it goes bust we've all bigger worries). After all, it's the Govt that backs up the FSCS scheme anyway.

So NR's super-safe status doesn't come from its protection but its absolute solidity. If you've big savings it's a convenient place to put them all in one go (though you can earn more while spreading cash elsewhere - see the Top Savings Accounts).

Of course, there's a slim chance the Govt may sell Northern Rock soon, but if so it has to be hoped it'll do this in a way that the bank's future remains secure.

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_dave__4

MSE_Natasha wrote: »

Martin's A. ...

... NR's owned by the Govt. and that's as safe as it gets (if it goes bust we've all bigger worries)...

So NR's super-safe status doesn't come from its protection but its absolute solidity...

Is that really true? ...

I mean, consider another bank, Bank X, which isn't owned by the Govt. It is owned by its shareholders. If Bank X goes bust, but its shareholders are still rock solid, then there isn't any requirement for the shareholders to pay extra money into the Bank to cover its liabilities, is there? ["Limited Liability" as in Ltd Co or Plc.]

In the case of Northern Rock, why would the Govt (effectively its shareholders) need to put up the missing money if it goes bust?

Lokolo

The government wouldn't let is collapse if it owned all of it.

sabretoothtigger

NR isnt a private company any more dave. If government has backed its trading and then defaults on that debt it has severe implications for any other debt they would guarantee


I think NR has deferred interest payments on some of their lower bonds though. Some accountant type would know why this is acceptable but Ive read it rates only slightly above share capital apparently

gazhawkins

"I think NR has deferred interest payments on some of their lower bonds though. Some accountant type would know why this is acceptable but Ive read it rates only slightly above share capital apparently"

Sabretoothtigger:

The deferred interest payments you refer to do not concern NR savings accounts or Joe Public who may hold them.

These bonds refer to loans made to Northern Rock by Institutions and Private Investors (before it was effectively nationalised by HM Govt.

Under the T&C issued with these bonds, NR is entitled to defer interest payments to the Bondholders; it's of little concern to savers.

Such bondholders are always in front of shareholders in the event that companies fail.

NOTE: Please don't accuse me of being an "accountant type" :rotfl:

_dave__4

sabretoothtigger wrote: »

NR isnt a private company any more dave...

Ah, so the Govt owns the NR assets directly, rather than owning the ltd co vehicle?

jack_spratt_2

Surely the wrong question is being asked ???

What if the goverment sells off Northern rock !! Customers with money over the £50,000 limit tied up in long term bonds what if any guarantees will come with the sell off .

If Northern rock is sold it will have its debt separated from good debt and bad debt so I am not suggesting investors will have a problem !! but customers may be spooked just as they were when the Post Office ( Bank of Ireland ) withdrew from the UK compensation scheme

sabretoothtigger

I couldnt tell you absolutely but its my impression they are directly responsible, the company itself was not able to raise credit needed so the government has it on the books imo

RBS if taken on would add 1 trillion to the governments books apparently which sounds impossible to save.
Theres assets hedged against the debts but still that is one heck of a juggling act (too many of those assets are not liquid)

Lansdowne

Jack spratt, that is indeed the real question, and the best indication we have is where the FSCS has announced a year ahead when the potential compensation limit where two institutions have merged will reduce to a single amount. (for example A&L and Abbey National or Co-op and Britannia)

Biggles

If I had £400k to invest I'd rather take 'guarantees' at face value than second-guess what the government might do with NR.

I would either put the whole lot in NS&I (which does have a 100% guarantee) or, much more likely, take the best interest rates from eight banks to spread the amount risked and keep it down to £50k.

mr_fishbulb

Here's my question of the week - where can I find myself a woman with £400K in the bank?