Icesave ISA customers have most to lose as they await fate of their savings

08 October 2008 / by Rachael Stiles
What defines a bank as British? – One that's operating in the UK? One that has a significant British customer base? One that has UK branches? These are the questions Alistair Darling must answer as those who hold savings accounts with collapsed bank Icesave ponder the safety of their savings.

One of the groups which have the most to lose from the collapse of the Icelandic online bank, owned by Landsbanki, are ISA savers, MoneySavingExpert.com's Martin Lewis has warned, as "countless" British savers were enticed by the online savings account provider's competitive rates.

Because Icesave is in itself an Icelandic bank, and not a UK bank owned by a foreign company, the Financial Services Compensation Scheme is not as simple as for other banks, causing concern among customers who fear for their money.

"Unlike Icesave, banks thought of as 'foreign' like Kaupthing and ICICI are actually UK banks fully governed by FSA regulators; it's only their parent companies which are from overseas." explained Mr Lewis.

The Chancellor Alistair Darling has said that up to £50,000 of each UK savers' money is protected under the Government guarantee, but Icesave's structure means that its customers must claim the first €20,887 through the Icelandic compensation scheme, and the remainder of the £50,000 from the UK's scheme.

Therefore, if it does come to that and Icesave customers need to reclaim their money, it will be the smaller savers who lose out if the Icelandic banking system is unable to meet claims for compensation due to the problems in its economy.

To put Icesave customers' minds at rest, or to put them out of their misery, the UK Government needs to clarify the situation for smaller savers – will they honour their responsibility to them as the founders of the ISA?

If the Icelandic government finds that it is unable to honour its compensation scheme, then the British Government should "be prepared to step in if necessary" in order to protect UK savers, says Mr Lewis.

"Yet the Treasury isn't answering whether it will pay that money if Iceland can't." he added. "It needs to assure UK savers that the whole £50,000 will get to them one way or another. I first asked this question six months ago; it wasn’t answered then, it hasn’t been answered yet and now it's almost too late."

© Fair Investment Company Ltd