Savers caught between Northern Rock and a hard place in the future can feel safer – or at least a little bit safer.
Chancellor of the Exchequer Alistair Darling has expanded the level of compensation for savers if their bank goes bust to £35,000 and pledged to go further in the future.
MoneyExpert.com research shows 60 per cent of us want higher levels of compensation and that 44 per cent of us don’t trust the Government, Financial Services Authority and Bank of England to look after our cash.
So it’s three cheers for the Chancellor up to a point. MoneyExpert.com shows you how to protect your cash until he goes further…
Expanded safety net
Raising the level of compensation to £100,000 needs new laws so the Government has moved to a £35,000 maximum payout for just now.
The Government offer is an improvement on the current Financial Service Compensation Scheme system. Previously it guaranteed your first £2,000 of cash and then 90 per cent of the next £33,000.
That meant a total of £31,700 of savers’ cash would be paid out in the event of a crash which was no use to anyone with more than that. Some people were withdrawing as much as £1 million in cash from Northern Rock such as Christopher and Fiona Howard who pulled their savings out of the Cheltenham branch.
Eggs in a basket
If you have a significant amount of savings you would be well advised to spread your money between different banks and financial service providers. Don’t give all your cash to one bank – look around for a range of deals.
Don’t put all your eggs in one basket because if the company is in trouble or just cuts its rates your risk is spread.
This way you’re exposing yourself to less risk should one of the companies perform badly.
Cash in a flash
If you have savings taken out of Northern Rock to reinvest then you should think about how quickly you need your money back.
Bonds and notice withdrawal accounts will only give you limited access to your cash and you will have to wait a certain period or follow certain procedures to get your hands on it. It can take as long as a year to get your cash back unless you are willing to pay a penalty fee.
This is compared to instant access savings accounts and most individual savings accounts (ISAs) which will allow you to take your money out whenever you like.
Both sorts of savings methods have their advantages – it depends on whether you can trust yourself not to touch your savings for every little purchase.
Instant access savings accounts – are just like a normal bank account except they are designed for savers so you can expect a better interest rate than you will get on most current accounts, and it can be as much as six per cent.
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The fact that you have unlimited access to your money means that you may miss out on the very top rates of interest offered in others savings accounts.
Notice to withdraw savings accounts – these are similar, but you will have to provide your bank with notice before withdrawing. This notice is usually around 30 days but the notice on some accounts is as short as a week. These limits tend to discourage customers from withdrawing and as a result can offer slightly better rates of interest.
Regular deposit savings accounts – are designed for savers looking to put money away every month and therefore might not be ideal for customers looking to reinvest a sum of money. However these accounts pay out big rates of interest, in some cases as a high as 8%. With these accounts there will be a minimum amount of money you will have to pay in every month.
Bonds – are investments where you give a company a certain amount of money and they then agree to pay you back your initial investment plus an agreed rate of interest, normally around 6%, at the end of the period.
Individual savings accounts – are a tax free account available to savers. They are limited however to savings of £3,000 in a mini-cash ISA in a tax year. Like bonds, they are currently paying out around 6% in interest.
Back in the bank
There’s little point having your savings sitting around the house – they might get stolen and while they’re there you aren’t making any money on them.
There are various options available to savers with money to play with, but whatever you chose to do with it be sure to consider when you need the money and if there is a lot of it spread it between as many companies as possible.
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