Treasury clarified guarantee over savings
May 31, 2008
The Treasury has recently clarified the situation with regards to guarantees over consumer savings. The issue was raised following the chaos that ensued after it was revealed that Northern Rock had taken a loan from the Bank of England. The bank, which has 1.5 million savers, saw a flood of customers pouring to the bank’s branches for days, queuing up to take out their savings, amidst worries that the bank was on the verge of collapse. Despite assurances from the government and the bank that the business was stable, over two billion pounds was taken out of Northern Rock savings accounts.
The government was forced to step in because of the financial problems that this was creating for Northern Rock – the bank in which it had just invested billions by way of the loan. Treasury officials have now stated that savers with account that were running at midnight on 19th September will have every penny of their savings guaranteed. The guarantee was also extended to those that closed their savings accounts and decide to reopen them. However, the government stressed that it could not extend this guarantee to those opening new savings accounts at Northern Rock.
One Treasury official stated: “This guarantee covers future interest payments, movements of funds between existing accounts, and new deposits into existing accounts. Since it would otherwise be unfair to other banks and building societies, the arrangements would not cover any new accounts set up after 19 September.”
Government officials have also reiterated to consumers that Northern Rock is not on the verge of folding, and that if the business was not a solvent and viable one the govern
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