Money
Managing your money
Northern Rock crisis: Call for calm among savers
Savers with Northern Rock are being urged not to panic as news that the bank has been forced to seek emergency funding sparked thousands of customers to demand their cash, writes Holly Thomas
The Newcastle-based lender has paid out more than £2 billion over the past few days to customers who fear their money could disappear if the bank went bust.
Analysts insist that people are extremely unlikely to lose their cash, or that the bank is in danger of going bust.
"This is a liquidity issue, not a solvency one," said Mark Dampier, investment expert at Hargreaves Lansdown.
"The problem is that if you tell people not to panic, then they do just that."
Consumers should know that a safety net is provided by the Financial Service Compensation Scheme. This pays out all of the first £2,000 and 90 per cent of up to £33,000 of savings in any case of a bank becoming insolvent.
Those with savings in excess of this can beat the upper limit by spreading their savings around different institutions.
Dampier said: "For those with savings less than this amount, they really do not need to spend their days queuing at branches to get their money out.
"It is inconceivable that the Bank of England would let the UK's fifth largest bank lose people's money."
One major downside to pulling out Isa savings in a snap decision is that once cash is taken out of its Isa 'wrapper', savers lose previous years' allowances. To retain the tax-free status, savers need to transfer the cash by signing up to a new provider which will arrange the switch.
Sue Hannums at financial advice firm AWD Chase de Vere, said: "Many savers with money in poor rate-paying accounts could benefit from the scare by being kick started into switching their cash to a higher paying account. But panicking could be a costly mistake."
Around 80 per cent of those with a mortgage from Northern Rock are on a fixed rate deal which means the interest rate cannot change during the stated period.
It is likely, however, rates for new borrowers will be more expensive.
The failure of thousands of risky mortgages in the US has left many banks carrying huge losses and unwilling to lend to one another.
It is this lack of ready money which meant Northern Rock was unable to raise the cash needed to pay off debts and offer new home loans, and organised a loan from the Bank of England.
