Despite Government reassurance that savers should leave their money where it is, National Savings and Investments, which is fully backed by the Government, has seen a massive increase in deposits, much like it did following the Northern Rock fiasco last year.

Although the Financial Services Compensation Scheme will compensate up to £35,000 for money held in deposit accounts and up to £48,000 if it is held in investments like stocks and shares ISAs, NS&I;, available through Post Office savings accounts, offers full protection and no maximum compensation limit so people are panicking and moving their money out of commercial institutions and into NS&I; where it is 100 per cent safe.

The trouble is, this is having a negative affect on the banks and despite the “flight safety” caused by the HBOS situation, its takeover will actually protects its savers.

“The reality is that people’s money is safe,” said Kevin Mountford, head of savings at Moneysupermarket.com, “but this is not about reality – it is about confidence. Perception rules and if people are concerned about their money they will take it out, move it elsewhere or stick it under the mattress.”

After the Northern Rock run in last summer, savers were advised not to have all their eggs in one basket and to move assets around so that they had no more than £35,000 in one place.

But the issue with that now is that with all the recent takeovers, savers could find they are over the £35,000 limit because their two separate institutions are now one. The same could happen with HBOS and Lloyds TSB – it all depends on whether or not the two decide to remain separately registered or not – which is why many savers are avoiding banks altogether and sticking their money in building societies and Government savings like they did after Northern Rock last year.

Although, ironically, after pulling their savings out of Northern Rock, many savers started to put it back in again thanks to its new nationalised status as Mark Dampier of Hargreaves Lansdown explains: “The irony is that once Northern Rock was nationalised, everyone began moving their money back there, as deposits are fully protected and so you don’t have to worry about the £35,000 limit.”

© Fair Investment