U.K. Treasury To Save British Icesave Account Holders

Posted by: Kerry Capell on October 08

British Chancellor of the Exchequer Alistair Darling pledged to guarantee all British customer deposits at Icesave, the Icelandic internet bank owned by Iceland’s oldest bank Landsbanki, after the latter was seized by Icelandic authorities and declared insolvent on Oct. 7.
“The Icelandic government have told me, believe it or not, they have no intention of honoring their obligations there,” Darling told BBC radio Oct. 8. “We have decided we will stand behind those savers.”

British Prime Minister Gordon Brown also confirmed that the British government will sue Icelandic authorities for reneging on their duty to compensate British customers. Britain has frozen all Landsbanki assets in Britain while it awaits a response from Reykjavik over the position of British savers.

Since its launch in Britain in Oct. 2006, Icesave has proved hugely popular with British savers. Its high interest savings accounts, which as of Oct. 6 were offering 7.06% interest on fixed savings and 6.03% on instant access accounts, attracted more than 300,000 British customers—which is roughly the size of Iceland’s entire population.

The decision to protect British depositors in Iceland was met with mixed reaction on internet forums and the British press. Newspapers were full of stories of Britons who parked their entire life savings in Icesave, lured by what many investment websites claimed were the best interest rate deals around. One young mother of four told the BBC she had invested her family's entire life savings of nearly $400,000 in Icesave.
It seems it wasn't just the banks that were making big, high-risk bets. In an Oct. 8 post Wires 74 says: "Icesave always seemed too good to be true...why should the British taxpayer bail out those who chose to bank their money overseas, especially somewhere as tinpot as Iceland?"

Indeed, concerns over Iceland's high leveraged bank were expressed as far back as two years ago. One potential British Icesave investor writing on an investing forum back in February said: "I used to have all my money with Icesave and was going to take their ISA too...but I got scared when I saw this in the terms and conditions: "In very exceptional circumstances only, to enable us to comply with legal requirements and maintain appropriate liquidity levels, we may temporarily cease or limit withdrawals from accounts for up to 60 days." Sixty days? Try indefinitely. The lesson? Read the fine print.