UK bank deposit security

I sold a property two years ago and deposited the proceeds into a well-known British bank as I felt it offered the best security for my money. I read with horror last week the events that have unfolded with Northern Rock with billions being withdrawn from the bank by worried savers. I am now very concerned about my own savings that are in a bank like Northern Rock. Should I be withdrawing this amount, as it around £150,000, and all the capital that I have?

The UK Chancellor of the Exchequer, Alistair Darling, announced on September 17 that the government would guarantee all deposits at Northern Rock in an effort to stem a tide of panic withdrawals from the bank. Since then, there has been conflicting information as to whom the guarantee applies to. The latest news from the UK Treasury is that the guarantee on savings deposits at the stricken UK mortgage lender took effect at midnight on September 19, and will remain in force "during the current market instability".

The Treasury said the guarantee will also apply to accounts that are reopened after being closed when it first emerged that Northern Rock was facing financial difficulties on September 13. One should therefore be reassured that this guarantee will apply and hopefully worried investors will be relieved to hear of this financial support.

The interesting thing, however, is that even despite this government guarantee, investors and shareholders alike appear to be dismissing it. Savers have continued to withdraw their savings and the bank's share price has plummeted beyond belief. Even after the latest statement by the Chancellor on Thursday, the share price fell a further 28 per cent!

This whole fiasco has undoubtedly caused concern with savers with deposits at other banks, yourself included, and has raised a huge question mark over the safety and security of cash deposits - even with some of the UK's biggest institutions. Savers should be aware that no cash deposit is 100 per cent safe, with only the first £30,000 of any deposit attracting any form of guarantee. Ninety per cent of the first £30,000 deposit is secure with no such security for deposits above £30,000. This applies to all UK banks.

A solution would be to place deposits with a number of different banks, 'spreading your risk'. In your case, you have a substantial amount kept in cash which offers no diversification at all into other asset classes. The successful investor will always spread his money across several asset classes such as cash, equities, property and alternatives like hedge funds. I would urge you to seek advice as to your alternatives to cash, as your cash may not be as secure as you had hoped and you are limiting your returns.

Past performance is no guide to the future and, except where amounts are guaranteed, the price of investments (and the currency in which it is denominated) may fall as well as rise. Your personal tax situation will depend on residence. Always consult a professional adviser. This article does not intend to give investment advice and its contents should not be construed as such. Readers are encouraged to seek professional advice on their personal financial situation

Mark Hollingsworth is the director of Hollingsworth International Financial Services Ltd, licensed by the MFSA to provide investment services under the Investment Services Act 1994 and enrolled insurance broker under article 13 of the Insurance Intermediaries Act (Registration No. C32457). Tel: 2131-6298; e-mail: mh@hollingsworth-int.com; www.hollingsworth.eu.com.