Better news for building societies

Andrew Hagger of Moneynet.co.uk comments on the news that the Northern Rock 100% savings guarantee is expected to be lifted.

The battle for savers' funds has been played out on an uneven playing field since Northern Rock was taken under state control.

The savings market has been distorted as it saw consumers with deposits in excess of the £50,000 FSCS limit seeking security of ‘safe havens' such as Northern Rock and NS&I to shelter their cash in one place rather than having the inconvenience of spreading it between providers.

Some savers will have sacrificed better rates available elsewhere in return for being able to keep their entire cash balance in one 100% secure account.

There's no doubt that building societies suffered in trying to compete against the 100% savings guarantee with many savers still concerned for the safety of their cash following the IceSave debacle in 2008.

Statistics from the Building Societies Association reveal a reduction in total balances of £1 billion in 2009 for the mutual sector compared with an increase of £19 billion in 2008.

Hopefully the lifting of the Northern Rock guarantee will enable them to compete fair and square and result in an inflow of retail savings balances again before too long.