Confused about the safety of your savings? It’s hardly surprising. On Tuesday morning the Icelandic internet bank Icesave froze the accounts of its 300,000 UK savers, trapping £5bn of deposits following the bankruptcy of Landsbanki, its parent company. Then on Wednesday afternoon, the British government seized control of Kaupthing Singer & Friedlander, immediately transferring the deposits of Kaupthing Edge to ING Direct.
Icesave wasn’t UK registered with the Financial Services Authority (FSA) but is registered in Iceland, a member of the European Economic Area (EEA). So initially, under the European “Passport Scheme”, it looked like customers would be forced to claim compensation from the Icelandic authorities, who would cover the first €20,887 (£16,250), with the rest being “topped-up” from the UK’s Financial Services Compensation Scheme (FSCS) up to the new ceiling of £50,000 per person.
Then, on Wednesday, the rules changed. Again. The UK government said it would now protect all Icesave savers’ deposits “to make sure that they get their money back”, said Chancellor Alistair Darling – good news for Icesave customers, but with no promise such protection would be extended to savers with other foreign banks: “I wouldn’t normally do this… but these are exceptional times”.
It seems the Kaupthing Edge move should safeguard savers’ deposits for now as Iceland’s economy runs into trouble, although it does mean that savings are now with Dutch bank ING. ING and other European banks, such as Bank of Cyprus, which aren’t FSA-registered, are also members of the passport scheme mentioned earlier (for a full list see www.fscs.org.uk). In ING’s case, the Dutch Investors Compensation Scheme protects savings to a maximum of €100,000.
If, on the other hand, your cash is held at the UK branch of an EEA bank whose home state has joined the growing list to announce 100% guarantees of all retail bank deposits (including Ireland, Greece and Denmark) then your money is now completely protected by that home state’s scheme. For example, accounts with the Post Office, Allied Irish Bank and Anglo-Irish Bank are all covered by the Irish government’s new 100% guarantee – though of course, as Iceland proves, a government guarantee is only as good as the government that backs it.
Lastly, banks based outside the EEA that want to take deposits in the UK can only do so through an FSA-authorised subsidiary, so any deposit claims are covered by the FSCS, as with UK banks. Examples include ICICI Bank, Turkisk Bank and First Bank of Nigeria, which offer online savings under the FirstSave name.
Of course, if you’d rather not have to worry about whether you’ll ever need to use the FSCS, both Northern Rock and NS&I are 100% UK government-backed.