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should you withdraw your money from northern rock?

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According to the BBC, �1bn was withdrawn from Northern Rock yesterday, after the announcement that the bank has applied to the Bank of England for emergency credit. Apparently, people have been queuing since 6 o’clock this morning to withdraw all the money from their savings accounts.

As it happens, I don’t have any money in a Northern Rock account, I withdrew it all earlier in the year to pay for my house. If I did, I would not be panicking and joining any run on the banks yet. The issue at hand is whether or not your money is safe. If

Firstly, I was listening to the Today programme on Radio 4 this morning, and it seems as if even if everyone withdrew their deposits, Northern Rock still won’t go under. Given all their assets and securities, the amount of money that the Bank of England will lend should just about cover the savings deposits in the bank.

Secondly, there is a compensation scheme around in any case.� If any regulated financial services company covered by the FSCS scheme is in default, they will pay out up to �31,700 in compensation at the rate of 100% of the first �2,000 and 90% of the next �33,000.

Finally, having stated that Northern Rock is sound, both the FSA and the Bank of England would all come off extremely badly should it default.You can be sure that there would be considerable political pressure to ensure that all depositors (people like you and I) got all their money back.

The trouble with moving your money elsewhere, is that there is no guarantee that it is any safer than at Northern Rock. Banks are a bit like sharks, (in more ways than one) if they stop swimming then they’re dead.

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4 comments for “should you withdraw your money from northern rock?”

  1. You are guaranteed 100% of the first £2,000 and 90% of the next £33,000 by the government. Of course if Northern Rock goes bankrupt (a major possibility) you’ll be asking for your money back, along with millions of other savers. You won’t see a penny for months (or possibly over a year) and will lose the interest you’d have gained if you’d transferred your money on Monday. The price you’ll pay is maybe a few tenths of a percent in interest. What price is peace of mind?

    Posted by Justin | September 15, 2007, 2:29 pm
  2. I suppose if there’s a massive run on banks, we’re all in trouble. If there’s a run on one or two banks, SOME people will be in trouble and not others, but the system will continue.

    It’s a good argument for keeping money in multiple institutions, although that has its risks, too.

    Disturbing stuff, any way you look at it.

    Posted by Brip Blap | September 15, 2007, 4:59 pm
  3. Hmmmmm. If my bank was going under, you can bet your ass I would be queing up. Insurance is all nice and good, but cold hard cash in a safe institution is much, much better. Would you really want for the government, bank and debtors to work it all out?

    Posted by shadox | September 15, 2007, 6:59 pm
  4. To me, this is a combination of laziness and confidence. Pretty much, the worst that is likely to happen is that I lose some interest (and that’s deeply unlikely). Is that really worth queuing in the street for. Especially as there aren’t any local branches nearby.

    Posted by plonkee | September 15, 2007, 7:26 pm

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