I’ve seen countless stories this week commenting that Northern Rock is the top paying savings account and “money will be flooding in there.” Frankly I find this quite ridiculous. Let’s make this very simple, (see my top savings article for full details and links) here are some top picks:
Quite clearly Northern Rock isn’t the top payer; it’s beaten on both rate and guarantee by the others. The same’s true in fixed rate and other categories too; there are better deals elsewhere (with the exception of its one year fixed rate cash ISA deal which is market leading, or those people currently getting the extra 0.5% loyalty bonus). Yet that’s not what’s being said.
Obviously someone in various newsrooms has said “lets do a story on how the government subsidy of northern rock means lots of savers will move their cash there and it’s skewing the competitive market place.” This is, of course, a great story, barring the little problem that it isn’t true. I can’t see floods of money going into Northern Rock for two simple reasons:
1. Sadly most people are financially lazy. Much of the population is still earning pitiful interest on their savings; less than 2.5%. If they’ve never moved before they’re not likely to suddenly become savings tarts.
2. Those in the know, know better. Those people who are already tarts, will hopefully know there are better rates elsewhere and not put their cash in.
Therefore, I don’t think that much cash will flood into Northern Rock, unless people believe the stories that are being told…
The one exception
The one shard of truth in all this regards the ‘government guarantee’ issue. The first £35,000 put in any UK savings institution is protected by the Financial Services Compensation Scheme (see the are my savings safe article), so for savings of under that amount there’s no problem, but amounts above that level remain unprotected.
However, as Northern Rock is now temporarily nationalised, all savings there are currently guaranteed by the Government. Thus, those with large cash piles could dump them in the Rock and get the extra safety. The Rock’s savings rates are high now, but its accounts are made much less appealing by the limited guarantee, the recent reputational damage and the instinctive distrust of a savings group with such an uncertain future, even with the government guarantee.
So while I’m sure there will be some people doing this, I can’t see it’ll reach a “market distorting” amount of money.