Northern Rock - "Best Buy"

m1ntie

Given the government backed unlimited guarrantee and excellent interest rates for savings, Northern Rock seems like a "best buy" for savings. Any views?

Steve_xx

Well yes, you could say that. You could say it because 100% of your deposit is guaranteed in NR, whereas with any other bank account you have a maximum guarantee of 35k.

However, the fly in the ointment is that this 100% guarantee will not last for eternity. It will end at soime point, and that "some point" is not yet known. when it does end, NR will only be able to guarantee the first 35k deposited, just like all the others.

m1ntie

Thanks for your reply Steve. I understand that there is an undertaking to give a minimum of 3 months notice of any change of terms & conditions - more than enough to move your savings if you wanted.

Steve_xx

Yes as you say this is so. But even after the three month notice period has ended, your cash would then receive similar protection to any other UK bank.

NR will now be substantially better off than it was a while back as its bond offers will have raked in a lot of cash. However, it has to pay for that cash somehow, as well as the loan it took from the Bank of England. It's hard to see how it can pay for its loans without having to make rates to its borrowers higher than to its depositors. This could effectively make it look too expensive for borrowers. I'm unsure how it will plan to deal with that issue. Perhaps it will be the case that the gap between what depositors get (in all banks) and what borrowers have to pay back for their loans will widen. I wouldn't therefore expect rates for savers to fall too far as money becomes harder to borrow.