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Savings accounts compensation starts for Icesave and other Icelandic banks

13 October 2008 / by Rachael Stiles
In the next week thousands of UK savers who have money locked in savings accounts of nationalised Icelandic banks such as Icesave and Kaupthing will receive information about how to claim compensation.

UK savers who feared they might never see their money again when the banks were nationalised and the Icelandic government said it would be unable to honour its compensation scheme will be relieved that they will get their savings back.

The Treasury has confirmed that Icelandic banks Kaupthing Singer and Friedlander(KSF), Kaupthing Edge, Icesave, which is owned by Landsbanki, and Heritable Bank are all in default, but says that savers' money is safe.

The UK Government has been forced to step in and offer a 100 per cent guarantee for those with money frozen in Icelandic savings accounts, and is threatening the Icelandic Government with legal action.

The Financial Services Compensation Scheme (FSCS) will cover up to £50,000 of savers' money, and the Treasury has said it will protect any amount above that.

Most of the 180,000 Kaupthing Edge and Heritable Bank customers will automatically have their compensation transferred to ING Direct, the UK savings arm of Dutch bank ING Group, which has bought both banks out after they collapsed in recent weeks.

Along with ING Direct savings accounts, Kaupthing Edge and Heritable Bank customers will heretofore be protected under the Dutch compensation scheme, which offers a €100,000 guarantee.

Customers of KSF need to write to the Financial Services Compensation Scheme in order to get compensation.

But 3,000 Kaupthing Edge savers who did not have online savings accounts, and about 100 customers of Heritable Bank whose accounts have not been automatically transferred will have to make an official claim for compensation.

From the Kaupthing Edge deal, ING Direct will acquire £2.5billion of deposits and 160,000 customers, and the Heritable Bank takeover will see them take on an additional 22,200 people with a collective £538million of deposits.

For Icesave customers the situation is not so straightforward. The first €20,000 should be covered by the Icelandic compensation scheme, and the UK Government would top up the rest, but Gordon Brown has had to step in and guarantee 100 per cent of savers' money until it can be released from frozen Icesave accounts. Customers will be informed on Friday about how they will be able to get compensation.

The UK Government is doing everything it can to recover the money from Iceland, the Prime Minister said, including freezing £4billion of Icelandic assets under anti-terror laws, but the Icelandic Government's Prime Minister Geir Haarde has reacted angrily to the UK's handling of the situation.

© Fair Investment Company Ltd