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Icesave blocks customers withdrawals
By Rebecca Atkinson
Icesave has put a block on all cash withdrawals from its savings accounts following its Icelandic owner being taken into public ownership.
In a statement on its website, the bank says: "We are not currently processing any deposits or any withdrawal requests through our Icesave internet accounts. We apologise for any inconvenience this may cause our customers. We hope to provide you with more information soon."
The move comes a day after the Icelandic regulator nationalised Landsbanki. The Icelandic Financial Supervisory Authority said it made the move in order to "ensure continued commercial bank operations in Iceland", adding that it was business as usual.
It is likely that Icesave has put the block in place to stop a run on the bank and in response to high levels of customer withdrawals. Landsbanki launched Icesave into the UK in 2006. It is estimated to have around £5 billion in saver deposits.
Prior to Landsbanki being taken into public ownership, the Icelandic government suspended share trading in its financial sector as investors reacted badly to the news that banks would be forced to cut back on their overseas operations. It then promised savers 100% protection for their money.
However, this guarantee does not cover UK customers of Icesave or Kaupthing Edge. The government put the protection in place amid fears that Icelandic banks are in serious danger of flopping.
The move to stop savers accessing their money is extreme, and is likely to cause more panic and anger among Icesave customers. The bank's terms and conditions state that "in very exceptional circumstances only" it reserves the right to to stop transactions in and out of its accounts for up to 60 days.
From 7 October all deposits held in the UK are protected up to £50,000. At this stage, it is hard to know whether Icesave savers are protected up to this amount or the previous limit of £35,000.
If Landsbanki went into administration prior to it being nationalised (and this is unknown as yet) and this happened before midnight, then there is a chance that the £35,000 limit applies.
Icesave is covered by two compensation schemes: the Financial Services Compensation Scheme (FSCS) in the UK and the Icelandic scheme. This means that if it is put into administration, then savers would receive compensation (up to £50,000) from both schemes, with the onus on them to apply to both.
Exception to the rule?
Bear in mind that it may never come to pass that savers have to claim back their money and Landsbanki may not be placed into administration.
Savers also need to remember that the FSCS only guarantees savings in situations where you do not owe the bank in question any money - therefore, if you have a mortgage, credit card balance or personal loan plus your savings in the same bank, you could end up with nothing in compensation.
Andrew Hagger, of Moneynet.co.uk, explains: "Any amounts owed to a failed institution by way of loans, mortgages and credit card debts are taken into consideration before any compensation claim is made."
"For example if you had a savings balance of £50,000 but also a personal loan with a balance of £12,000 outstanding, you would only be able to make a claim under the FSCS guarantee for £38,000."
People who have an outstanding borrowing balance of more than their savings balance will be left with nothing.
Over the weekend, Geir Haarde, Iceland's prime minister, told Iceland's banks that they had grown too big and needed to sell off some of their overseas operations and bring the capital back home.
Haarde's announcement sparked panic among investors and "disrupted" normal share pricing.
Iceland's largest bank, Kaupthing Bank, has been in the UK since 2005 but only launched a savings account in 2008 through its Edge brand.
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