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How safe is your money?
Page 36
Page 37
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After the Northern Rock panic, businesses are asking whether their investments are safe. Only up to a point, says transport lawyer Nick
Marshall but you can spread the risk. The recent troubles at Northern Rock have raised questions in everyone's mind about whether their money is really safe in a bank. And given the minimum levels of financial backing required by 0-licence holders many operators might be forgiven for asking, "is my money safe with any bank'?".
As a starting point it is important to look at the recent difficulties facing Northern Rock customers. How did it happen? The problems arose from Northern Rock's decision, for safety's sake, to open up what is effectively an overdraft facility with the Bank of England. The need to open such a facility was a direct result of the US credit crunch which is making it difficult for banks to borrow money from other financial institutions.
Northern Rock has not even used this facility: it is just there for emergencies. And while this did result in Northern Rock's share price dropping (if it had used the overdraft such borrowing would have been expensive) the move should not have been such a big deal for customers; it was rather more an issue for the financial markets. Despite this, the story ended up on the front page of the newspapers and that is where the problems started.
Coverage led to panic
The media coverage led to panic. People started queuing outside branches or trying to withdraw money on the web. Add this to the fact that Northern Rock's website could not deal with the demand ED withdraw cash and you get a siege mentality.
Worry set in and people started to think Northern Rock was stopping customers from getting their cash. What was in reality not a problem, overnight became a serious issue for the banking community.
While nothing is impossible, according to financial analysts the chances of Northern Rock and other high street banks going bust are smaller than Accrington Stanley winning the FA cup. And even if the unthinkable did happen, there are some protective measures in place. Normally, for example, you are automatically covered fort31,700 of your first £35,000 with any bank, thanks to the official Financial Services Compensation Scheme (FSCS), which also applied to Northern Rock until this crisis.
After customers queued in the streets The Chancellor of the Exchequer announced on Monday 17 September that 100% of all existing deposits with Northern Rock are totally guaranteed.While nothing is set in legal stone at this stage, for the Government not to honour this promise (especially after the massive public interest in the story) would be political suicide.
So it would appear that, in this case at least, a politician's word is his bond.
For the moment, all other bank customers — well, nearly all — are still covered by the original FSCS: 100% of the first £2,000 saved, and 90% of the next £33,000 (double these figures in the case of a joint account). So who isn't covered? There are a small number of categories of shares and deposits which might be excluded, including deferred shares/permanent interest bearing shares. 'lb ensure you are covered you should contact your bankibuildi ng society or the FSCS.
Banking crisis
Which brings us to the big question: is the UK plunging into a banking crisis?
As long as people are sensible and do not start withdrawing their life savings,experts say a crisis should be avoided. And if you want complete peace of mind, given that you have protection of up to i35,000 in any one bank, you could deposit larger amounts of money with different banks.
As an alternative you could place your money with the National Savings and Investment which offers a range of 100% secure saving and investment accounts that are backed by HM Treasury. Rut whatever you decide to do, make sure you take professional advice as prevention is better than cure. • • Nick Marshall is a transport lawyer with Marshall Glover Solicitors., specialists in commercial and transport law.