Following the Northern Rock bank run, the government has revealed an interim guarantee to all savers in all UK banking institutions. The guarantee now covers 100% of the first £35,000 in savings, which had previously only been secured at 90%.

However, the government is expected to better this guarantee inline with the offer made to Northern Rock account holders of securing 100% of the first £100.000 of savings. This is expected to be implemented during the next sitting of parliament starting on 8th of October 2007.

The Market Oracle had stated in the article of 17th Sept 07 ( Northern Rock Panic - FSA Compensation Scheme Savings Limits Are Too Low and Need to Be Raised ) , that the government needed to step forward and guarantee 100% savings of the first £100k to ensure that the current panic at Northern Rock is brought to a halt and to prevent future panics in the banking sector amongst savers.

Even though it is a big positive for the stability of the UK's banking system ie. in the prevention of another run on the banks. It will however have some negative impacts such as drawing savers away from other investment products toward cash and fixed rate savings accounts.

The Market Oracle earlier today warned savers to take advantage of fixed rates of near 7% as they are not likely to stay on the market for much longer. UK Interest Rates Expected to be Kept on Hold at October MPC Meeting as House Prices Flat line

By Sarah Jones
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