Icesave failure expected

The Financial Services Authority (FSA) has reported Icesave is now expected to go into insolvency in Iceland, triggering compensation claims from 300,000 British savers.

The bank froze accounts this morning, with worried savers receiving only a message on the website explaining that neither withdrawals nor deposits could be made.

Icesave is the UK branch of Landsbanki Islands, which was taken into receivership earlier this afternoon.

The bank is protected by the Icelandic Depositors' and Investors' Guarantee Fund up to the first €20,887 of their deposit and any more, up to £50,000, is covered by the British Financial Services Compensation Scheme (FSCS).

An announcement is expected to be made soon, possibly tomorrow morning, on whether the bank will be made insolvent.

In the meantime, savers are advised to wait for updates.

However, an FSCS spokesperson said in the event of insolvency, the agency would attempt to make the process as simple as possible for savers.

A single form would be sent out to all customers, which would mean customers would only have to go through the FSCS to retrieve their cash.

Landsbanki said operations over the next few days would be "performed in a manner as close to business as usual with a view to protecting Landsbanki's assets in Iceland and abroad".

David Kuo, head of personal finance at Fool.co.uk,has called on the government to provide cover for Icesave savers.

"The UK government must step in without delay to keep British Icesave customers properly informed. There are a lot of worried customers, and they are anxious because they do not know whether their money is safe," he said.

"The government should have foreseen something like this happening, and if it didn't, then we have to ask why not. Contingency plans should have been put in place to ensure that savers are spared the anxiety of "passporting", where customers have to claim a portion of their compensation from the Icelandic authority and the rest from the UK Financial Services Compensation Scheme.

"The passporting scheme has never been stress tested, and should it be found wanting, then the government must ensure that all UK customers are fully reimbursed."