Good And Bad News For Rock Savers

The government has guaranteed that savers with Northern Rock won't lose a penny. However, there is bad news for some savers.

The good news for Northern Rock savers has been Alistair Darling's guarantee that holders of conventional savings accounts won't lose a penny. However, there is bad news for some savers. But first, in case you're not up to speed as to what's happening at Northern Rock, here are links to our most recent articles on this subject:Northern Rock: A Busted Bank?Northern Rock: Are Building Societies Safer?Northern Rock: How To Keep Your CoolIn brief, Northern Rock is in trouble because it relied on the international money markets to fund around three-quarters (75%) of its mortgage lending. As inter-bank lending has all but dried up since July, Northern Rock has particular difficulty in meeting its day-to-day lending needs.The ongoing credit crunch forced the former building society to approach the Bank of England last Thursday for an emergency line of credit. This development caused panic among Northern Rock savers, who have queued in their thousands to withdraw roughly £1 billion a day from their accounts. In addition, shares in Northern Rock collapsed, falling from £6.39 on Thursday to as low as £2.57 yesterday afternoon.The government steps inAs I predicted on Friday, savers in Northern Rock now have nothing to fear, as their savings accounts are backed by the government. Yesterday evening, in response to widespread concerns about a possible run on British banks, the Chancellor, Alistair Darling, announced that the government and the Bank of England would ensure that Northern Rock savers "will not lose a penny" In other words, thanks to this government guarantee (on top of the existing protection afforded by the Financial Services Compensation Scheme), Northern Rock is now `Rock solid'. In effect, it now enjoys the `AAA' credit rating given to British government debt. However, some savers clearly don't trust the Chancellor, as queues were still forming outside Northern Rock branches earlier today!Nevertheless, the stock market responded positively to the Chancellor's promise, lifting Northern Rock shares by a tenth (10%) to around £3.10 in early trading this morning. So, the good news is that although Northern Rock shareholders have lost billions this year, its customers and their money are entirely safe. Phew! Now for the bad news:Losing out in the panicWith a question mark hanging over Northern Rock's future, some panicked savers withdrew as much of their savings as they could from the bank's coffers. Some have paid hefty withdrawal penalties or lost out on interest in order to move their life savings elsewhere.However, Northern Rock has agreed to refund all penalties paid by any savers who re-deposit their cash with the bank by Friday, 5 October. Then again, as I understand it, the (temporary) government guarantee only applies to savings balances as at the close of business on Monday, 17 September. Thus, it may not apply to new money deposited with Northern Rock, so do check before re-investing.Sadly, there is another group of savers who have lost out big-time: those who chose to close tax-free savings accounts known as cash ISAs (Individual Savings Accounts). Anyone withdrawing cash from ISAs opened in 2006/07 and earlier tax years will not be able to re-deposit these sums in those tax shelters. Instead, if they have any remaining ISA allowance for this tax year, then they can deposit up to a total of £3,000 in a 2007/08 cash ISA.Sadly, for some savers, the rush to withdraw their money from Northern Rock could mean the loss of ISA allowances going back as far as 1999/2000. At worst, a hasty saver could have lost eight years of ISA allowances, worth £24,000 to an individual or £48,000 to a couple. Rebuilding this tax shelter will take many years, meaning that these savers will lose out because of tax paid on interest from replacement (taxable) savings accounts. What a crying shame!(Of course, any savers who transferred their ISAs to other providers will be fine. But those who closed their ISAs because they wanted to get their money out quickly will sadly suffer.)More: Earn more interest in a table-topping savings account | Great News From The Credit Crunch! | The Perfect Savings Account