More than 200,000 retail depositors  in Icesave UK, the UK retail  branch of Icelandic bank, Landsbanki, will get back their saving paid back to them electronically, via their ‘linked bank’ accounts,  the Financial Services Compensation Scheme (FSCS) announced yesterday.

The FSCS expects to launch the process in 10 days’ time, following the Government’s guarantee that 100 per cent of all deposits held by retail depositors of Icesave will be repaid and that savers will not lose their ISA tax status.

The FSCS will write to IceSave depositors setting out how the process will work and will contact customers again with instructions on how to complete a short electronic process to effect the transfer.

The process will be phased over a number of days to prevent  system overload and for security reasons.

FSCS chief executive, Loretta Minghella, says:  “We will be contacting retail depositors to tell them how the transfer process will work and when they can access the system.

 ”The automated payment process is expected to be in place in 10 days’ time and the first payments are scheduled to start in the second week of November.”

Icesave’s customers do not need to do anything for the time being. The correspondence you receive will tell you everything you need to know about how to access your savings, ISAs or term accounts.

The FSCS is also processing compensation applications from customers of Heritable and Kaupthing Singer and Friedlander whose accounts were not transferred to ING Direct.

The FSCS made the first compensation payments to members of Heritable Bank just 17 days after the bank was declared in default by the Financial Services Authority (FSA).

FSCS director of claims, Jonathan Clark, says: “We have sent application forms for compensation to all individuals whose accounts were not transferred to ING Direct and would encourage those who believe they have lost money to return the forms as soon as
possible.

 ”We are hoping to have paid all eligible claims by the end of November.”

The FSCS thinks there are less than 100 eligible retail depositor accounts that have not transferred to ING Direct.

For more information about the FSCS visit www.fscs.org.uk.

You can check whether the financial institution you are dealing with
is authorised by the FSA, by phoning the FSA’s Helpline: 0845 606 1234.

Check out the Defaqto best buy tables for instant access  savings accounts:

http://www.defaqto.com/consumer/savings-accounts/instant-access-accounts.aspx

Top 10 regular savings accounts:

http://www.defaqto.com/consumer/savings-accounts/regular-savings-accounts.aspx

Top 10 cash ISAs

http://www.defaqto.com/consumer/savings-accounts/cash-isas.aspx

Top 10 children’s accounts

http://www.defaqto.com/consumer/savings-accounts/childrens-accounts.aspx

STOP PRESS: the Government has said it will compensate all Ice Save depositors in full. 

In a separate move, ING Direct will acquire £2.5bn of deposits held by 160,000 customers from Kaupthing Edge, the internet-only UK retail arm of Iceland’s biggest bank.

ING Direct is also taking control of £538m of savings held by 22,200 people with Heritable Bank, which was run by Iceland’s Landsbanki - Icesave’s owner.

With the collapse of Iceland’s second largest bank, Landsbanki, yesterday the grim reality of the credit crunch is starting to hurt British savers for the first time in a real way.

Some 300,000 UK savers have an average deposit of £15,000 in Landsbanki’s popular IceSave account which featured regularly in the best buy tables.

Under the deposit protection arrangements in Iceland, the Icelandic authorities would normally pay depositors the first €20,887 of compensation (£16,300), while the UK’s Financial Services Compensation Scheme (FSCS) would make up the rest of any claim up to the increased limit of £50,000 (which luckily came into effect yesterday).

But this morning, the Chancellor, Alistair Darling said that the Icelandic compensation scheme had no money in it and that the UK government would pick up the tab and compensate UK savers in full.

 This latest collapse brings home to UK savers the fact that foreign-owned banks can make claiming compensation a more complicated and risky process.

In the Defaqto term accounts best buy table on Tuesday (prior to the announcement of Landsbanki’s collapse), no fewer than seven of the accounts listed were from non-UK banks http://www.defaqto.com/consumer/savings-accounts/term-accounts.aspx.

Of these two were from Anglo Irish Bank, which now enjoy a 100 per cent guarantee from the Irish government. But three of the accounts were Landsbanki IceSave accounts, one was from Dutch-owned AK Bank NV and one was provided by the Indian bank ICICI.

While there is nothing inherently wrong with saving in a foreign-owned bank, depositors should check what the arrangements would be if anything went wrong. Levels of compensation vary from country to country and their authorisation.

To date, however, the UK Government has compensated depositors in full.

For more on the FSCS:
www.fscs.org.uk
Why not invest regularly with a mutual building society:
http://www.defaqto.com/consumer/savings-accounts/regular-savings-accounts.aspx

The Government’s proposed increase in the savings compensation guarantee from £35,000 to £50,000, while a welcome  improvement, will provide scant reassurance for many savers.

The problem is that the £50,000 limit is per person, per bank. If you happen to save with a number of  institutions which are all  authorised by one parent bank, the £50,000 compensation would cover all these accounts in aggregate, not individually.

For instance, if you save with Bank of Scotland, Halifax, Birmingham Midshires, Intelligent Finance and St James’s Place bank, the savings guarantee would cover £50,000 of your savings in total, not per institution. 

The same principle operates under the current £35,000 savings compensation guarantee, so anyone with large amounts with institutions which are linked in this way might wish to consider spreading their risk across other banking groups.

The British Bankers’ Association recommends that savers check on the FSA website to see how an institution is authorised by visiting  www.fsa.gov.uk/register and typing in the firm’s name. This will show whether it is separately authorised or authorised by a parent bank. By typing in ‘Intelligent Finance,’ it is clear that IF is linked to Bank of Scotland and all the firms mentioned above.

However, just because one institution owns another, does not mean that they can’t be separately authorised. Although Royal Bank of Scotland owns NatWest, the two banks have separate authorisations, so a saver could hold £35,000 with both banks and be eligible for compensation  of up to £70,000, in the unlikely event that both banks went bust. 

But the FSA recommends that savers check with the institution itself as to its status with regard to compensation. Robin Gordon Walker of the FSA press office says: “Brands come and go, so it is advisable that savers check on the institution’s website or with the customer service helpline as to the extent of compensation.”

The limited nature of bank deposit compensation rose to prominence last year when the run on Northern Rock revealed some savers with deposits of £1m  and who would only have been covered for £35,000, if the Bank of England had not stepped in to guarantee customers’ deposits.

For the top instant accesss savings rates visit:
http://www.defaqto.com/consumer/savings-accounts/instant-access-accounts.aspx