Northern Rock – Savers vs. Investors
Posted by markharrison on September 19, 2007
Well, Friday’s post about Northern Rock has proved to be my most popular blog post ever, and it’s certainly an odd situation.
On Friday, I said “There’s no downside to having cash in hand over the weekend” and I stand by that. I hadn’t expected, though, that so many people would still be trying to withdraw money by Monday.
The Government have now announced a “bailout”, but there is some confusion about how this might work. Certainly, on the breakfast programme on BBC Southern Counties Radio this morning, the presenter, was talking about “helping Northern Rock investors.”
In a bank, savers are not investors.
In a bank (like Northern Rock), then there are savers, who put money into individual accounts. These people were already partially covered by the Financial Services Compensation Scheme (which would cover up to £31,700 – being all of the first £2000, plus 90% of the next £33,000 lost by any individual.)
What the Government have done is said that savers are fully protected. (Though it’s a bit of an empty promise, since everyone is in agreement that the Northern Rock has plenty enough assets to cover the payouts if needed – it’s just “immediate cash” that it’s short of.)
What the Government has not done is said that investors are protected. If you bought £2,000 worth of Northern Rock shares early last week, expect to be able to sell them for only about £1,000 today.
That’s the deal with investment – it can go down as well as up. (Property as well, not just shares.)
I find it perfectly acceptable that the Government should agree to underwrite savers (just as I did with Fairpack last year), while not at all supporting any underwriting of investors.
Will Northern Rock survive? Well, would I take out an NR mortgage this week – probably, if my IFA told me it was the best package for my circumstances. I’m not rushing to open a deposit account today, though 🙂
For the record, I held a Northern Rock mortgage on one of my investment properties from about 1994 to 1996. I have never held an NR deposit account, nor have I ever bought shares in them.