Thousands of savers with dep-osits of more than £50,000 have been moving their money to the biggest financial institutions over the last few days, as smaller lenders have begun to come under greater financial pressure.
Abbey, which is owned by the Spanish banking giant Banco Santander, said it had seen a sharp rise in the amount of deposits being made over the past few days. By the end of last week, the amount of money coming in through its branches alone had increased by 270 per cent. Meanwhile, HSBC has also seen a sharp increase in the levels of new deposits.
Yesterday, the Financial Services Compensation Scheme increased the level of depositors' protection from £35,000 to £50,000 – a move which the Government said would cover 98 per cent of all savers. However, the remaining 2 per cent of savers account for almost half of the UK's entire deposit base in value terms.
These savers have been on a flight to quality, moving money above the new limit to the largest institutions, as well as to the largest Irish banks, which have received a full guarantee from the Irish government.
Anglo-Irish Bank, which is offering instant access savings accounts paying a competitive rate of 6.4 per cent, is believed to have seen one of the largest inflows of new money over the past week.
Until last week, Northern Rock, which was nationalised this year, had been taking one of the highest shares of new deposits. But the bank was forced to close its most competitive products to new business after it neared its maximum permitted market share.
National Savings & Investments – the other state-owned deposit taker – is also believed to have seen a steady stream of inflows, in spite of its interest rates remaining well below the best available.