As Landsbanki, the Icelandic bank that operates Icesave, was taken into government control, Icesave suspended payments into or out of its UK savings accounts on Tuesday 7th October.
It’s likely that savers with Icesave will have to resort to the Financial Services Compensation Scheme (FSCS). The UK compensation scheme now covers the first £50,000 per person in UK bank deposits (raised from £35,000 on Tuesday), but in the case of Icesave there is a wrinkle.
Icesave operates as a branch of Landsbanki, not as a separate UK company, so Icesave’s depositors will have to claim the first Euro20,887 from Iceland’s own compensation scheme; the UK’s FSCS will then pay out any excess up to the UK’s £50,000 limit.
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Dual compensation confusion
When I wrote about compensation arrangements last year, I said that I wasn’t aware of any payouts having ever been paid under these ‘dual compensation’ arrangements, and that I wouldn’t want to be part of such an experiment. As a result I got a tirade from someone at Landsbsbanki’s PR company (I hope Landsbanki haven’t paid their bills) who didn’t understand the distinction between having your savings in a bank authorised by the UK regulators and one simply ‘passported’ into the UK under international agreements, as Landsbanki was.
With a UK bank authorised by the FSA – and that includes subsidiaries of many foreign banks - you are automatically covered for deposits of up to £50,000. Indeed, even though it is owned by Landbsanki, Heritable Bank falls into this category, since it is a UK company authorised by the FSA.
If you are in any doubt about a bank’s status, look at the small print regulatory wording: if it says ‘authorised and regulated by the FSA’ the bank is fully covered by the UK compensation scheme. If it says only ‘regulated by the FSA’ then depositors are protected by the compensation scheme in the bank’s home country, though such banks can choose to ‘top up’ by joining the FSCS, as Landsbanki did for Icesave. There is a list of foreign-owned banks that have ‘topped up’ on the FSCS website.
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Need not worry too much
As savers see bank shares in free fall, they become worried. But you needn’t be that worried. The FSCS is normally quick at settling claims and aims to get even faster by next year, when it aims to pay out failed bank depositors within a week. And if you start worrying that Barclays or Royal Bank of Scotland could fail, you may end up so worried that you fill your rucksack with baked beans and head for the hills.
Ireland’s government has given a categorical guarantee of safety to all depositors in its six biggest banks, all of which offer sterling deposit accounts. But in reality, this guarantee is only of interest to people who plan to deposit over £50,000. After all, the reason the Irish government did this was that its banks are generally seen as dodgy, so why would you rush to put your money in a dodgy bank? You would face the same anxiety in getting your money out whether or not there is a government guarantee.
For the real lowdown in why several European governments have issued such ‘guarantees’ to savers, see my separate article.
UK savers with under £50,000 (under £100,000 for a joint account) will get all their money and interest back if a bank or building society fails. So they might as well go for the account spaying the best interest, many of which are listed in our Best Buys.
But be aware that several UK banking groups operate several different brands under the same banking licence. So if you want to be really cautious, restrict your deposits to all the companies in the same banking group to £50,000 in total, not per account.
Here are most of the biggest brand names in savings, and their owners:
Brand Owner
First Direct HSBC
Cheltenham & Gloucester Lloyds TSB
Bank of Scotland HBOS
Halifax HBOS
Birmingham Midshires HBOS
AA Financial Services HBOS
Intelligent Finance HBOS
Saga savings HBOS
Alliance & Leicester Santander
Abbey Santander
Cahoot Santander
Bradford & Bingley Santander
Asda savings Santander
NatWest Royal Bank of Scotland
Ulster Bank Royal Bank of Scotland
Coutts Royal Bank of Scotland
Direct Line Royal Bank of Scotland
Ulster Bank Royal Bank of Scotland
Yorkshire Bank National Australia Banking Group
Clydesdale Bank National Australia Banking Group
Egg Citigroup
Citibank Citigroup
