The recent scandal involving the Northern Rock Building Society has sent shock waves through the UK banking, Insurance & Mortgage Industry and many people are now asking the question’ How safe is our money”. Things went from bad to worse yesterday when the chancellor of the exchequer, Alistair Darling admitted promising only to guarantee the first £35,000 of savings held in British Bank accounts. This is opposed to the £100,000 he originally first suggested. At the present moment only the first £2,000 is fully protected, then 90% of the next £33,000. Under the new proposal consumers would only see an extra £3,300 of their money protected.
Mr Darling is in a process of overhauling the limits applicable under the Financial Services Compensation scheme which has been brought about by the Northern Rock situation. In the insurance industry anyone that trade’s contract has to be registered by the FSA and has to contribute a levy to the scheme. It will be interesting to see how Mr Darling intends to pay for this extra guarantee.
At the present moment homeowners are already under pressure with the threat of increased home insurance costs as a result of bad weather claims, the last thing they need is more pressure caused caused by higher compliance costs. The Association of British Insurers have also calculated that by raising the threshold to their suggested level of £30,000 would be enough to cover 98% of savers in The United Kingdom. They are also worried that by lifting the level to anything higher that this may encourage people to overlook investment products.
At a time when the UK insurance industry is trying to persuade people to look for investments other than buying property, everything possible must be done to make more traditional forms of investments look as safe and inviting as possible.Savers too are worried by the effect of raising the compensation barrier, many believe that it will result in lower interest rates as the cost of compliance is met. Still you can’t have it always, ultimately protection has to be paid for. But on the whole, the general feeling is that money on deposit and that paid in to insurance premiums is fairly safe. The United Kingdom has a good record with the holding of client funds and our compliance systems, although sometimes fairly bureaucratic are the envy of a good number of other countries.