Kaupthing & Icesave: MoneySavingExpert.com Official Note

MSE_Martin

IMPORTANT UPDATE (Tue 7 Oct). At 7am this morning I added an Icelandic Section to the are your savings safe guide. We're constantly updating it and digging for info (me, MSE Dan and MSE Wendy, all full time on it). It's my intention to put all updates there, not on the forum, so please check that.


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Understandably there are many questions about the Icelandic situation. This evening the Icelandic government has guaranteeds Icelanders money in their banks, yet of course we have yet to find out the impact for UK savers, but it should help their solvency and trust in them.

However, as far as the situation for people in the UK... nothing has actually changed. The following is a reply I set up today as an auto-response to e-mails. I thought it would be useful in here...
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Hi,

Thanks for your question about saving in Icelandic banks. We update the savings safety guide daily at the moment and that is always the prime place for information. Any urgent updates will go in the weekly e-mail. But here's a brief summary (though again full details are in the main guide)

The situation in Iceland isn’t pretty, then again, this ugly situation is repeated in a number of countries. Right now it is impossible to know which banks are safe and which aren’t, which government will back them, and which will be allowed to fall.

In the US Lehmans was allowed to collapse, but giant once immovable banks like Goldman Sachs and Merrill Lynch need rescuing.

However they are investment banks and savings banks to tend to be different and governments push very hard to look after money in them. I hope and suspect things will be ok, though in such uncertain times though, no one knows.

Ultimately there are two forms of protection to a bank in trouble...

1. The government will bail out the bank to support it and stop it actually going bust (e.g. Northern Rock & Bradford & Bingley)
2. As a back up there is the Financial Services Compensation Scheme which is protects up to £50,0000 (from tomorrow - Tue 7 Oct, currently its £35,000)

It's important to understand that the two main Icelandic banks operating in the UK work these differently.... as explained in the Safe Savings guide it works like this.

• Kaupthing Edge is for regulatory purposes a UK bank, and so has the full £50,000 protection (from Tue, £35,000 currently) if it went bust, so if you have less than that in there it is safe and protected by the UK schemes.
  
  For its greater solvency its likely it has to rely on the Icelandic government; as its questionable whether the UK government would bail out a foreign bank's UK subsiduary. It’s likely the Icelandic government will do all it can to protect it... but some question how mighty it is. Yet certainly if you have less than the £50,000 in there, then your money is protected.

• Icesave. This is slightly trickier, as it operates the ‘passport exemption’ that means while you get the same £50,000 protection (from Tue, currently £35,000) the first 20,000 Euros would come from the Icelandic compensation scheme. This in practice shouldn’t be a problem, providing the scheme has the money, but its understandably less reassuring than with Kaupthing Edge.
  
  This has been added to our regularly updated Safe Savings article, with the really important bit in bold
  
  STOP PRESS. Updated 17.30 Tue 7 Oct. Icesave temporarily stops withdrawals.
  
  Icesave is reported to have gone into technical receivership, meaning its assets have been taken over by the Icelandic government and it has effectively been nationalised (like Northern Rock was), see this FT article.
  
  We’re constantly speaking to Icesave, the Treasury and the FSCS to monitor the situation. All updates will appear here and be included in the free weekly email.
  
  While the bank has stopped withdrawals, that doesn’t mean it is now bust, though at best its probably a 50-50 likelihood. Here are the crucial points.
  • The bank is still operational.
  • No compensation arrangements have been triggered (this only happens if the bank isn’t still operational).
  • If compensation arrangements are triggered it will therefore have been after the new £50,000 level introduced today.
  • All UK savers are thus protected up to £50,000 per person in Icesave (£100,000 for joint accounts).
  • The first €20,000 (this may’ve been upped to €50,000 on some reports of a European meeting today) will come from the Icelandic compensation scheme.
  • If a claim were needed, it will probably involve filling out just one form to the FSCS, you would not have to write to Iceland.
  • If you have money in a cash ISA, whether you would be able to keep the ISA status isn’t yet clear. However after Northern Rock, the government ensured all ISA savers kept their status, even those who’d withdrawn money, so it is very likely.
  As for the strength of the Icelandic compensation scheme, there are reports, yet to be 100% confirmed, that the Icelandic government is promising to ensure all necessary compensation will be met and it will fund the scheme.
  
  We spoke to the Treasury this morning about whether, in the very unlikely event of the Icelandic scheme not being able to cover its obligation of the first, would it step in and make sure UK savers were covered for the whole £50,000?
  
  Late this afternoon it finally called to say "The UK government is working with the Icelandic government to protect UK savings up to £50,000", and we're hoping for more soon. We interpret this to mean that over and above that level, it's up to the Icelandic government
  
  However, there is no FINAL answer, discussions are ongoing and this article will be updated as soon as anything further is decided. For more info, read my full blog.

Ultimately, there’s no easy solution here, instinctively I suspect these banks will be ok, but I certainly would be cautious about any money over and above the safe savings protection limit in there. Then again at the moment caution over the safety of any bank is the watch word, so that's not so different.

Martin

meester

you should mention that it is £100k for joint account holders, which protects many more people.

Paul_Herring

MSE_Martin wrote: »

This evening the Icelandic government has guaranteeds Icelanders money in their banks, yet of course we have yet to find out the impact for UK savers,

There is no impact for UK savers - we aren't covered by the Icelandic guarantee.

http://www.moneywise.co.uk/news-views/2008/10/06/icelandic-government-freezes-trading-biggest-banks

Mikeyorks

meester wrote: »

you should mention that it is £100k for joint account holders, which protects many more people.

Perhaps he's working on the premise that those who write directly to him and can't be bothered to read the articles on the main site ...... might at least read the first link in his Emailed response ? :-

The limit's doubled in a joint account.
Money saved in an account registered in two names receives twice the protection; that's therefore the first £100,000. Don’t get too excited though, this isn’t an extra allowance; it’s simply the same protection as if each account holder had a separate account.

meester

Mikeyorks wrote: »

Perhaps he's working on the premise that those who write directly to him and can't be bothered to read the articles on the main site ...... might at least read the first link in his Emailed response ? :-

If that were the case, his email would say, 'Thanks for emailing, please read the regularly updated guide: link, for my answer'

StevieJ

Heritable bank is owned Landesbank but is covered by full UK guarantee, I have a two year bond (due this month), interest is paid on completion, is this interest included in guarantee?

Paul_Herring

StevieJ wrote: »

Heritable bank is owned Landesbank but is covered by full UK guarantee, I have a two year bond (due this month), interest is paid on completion, is this interest included in guarantee?

Interest accrued up until the point the FSCS gets involved is included if the total is below £50,000. No interest will accrue between that point and the time you get your money.

roddydogs

NO more KE posts please!!!!!!!!!!!!!!!

StevieJ

roddydogs wrote: »

NO more KE posts please!!!!!!!!!!!!!!!

Why? seems pretty important to me.

KTF

KE is protected as per every other UK bank. Icesave is using a different scheme. Dont drag KE into this mayhem as well.

MABLE

I here everything that is being said. Listening to the guy from Icesave on Saturday he was very convincing and when I have phoned KE.

For me I have withdrawn my savings from KE instant account and that is only because the money was only there on a temporary basis and is required by end of month.

I also have savings in KE fixed rate 3 year deal and am very happy to leave that as if anything happens to that money I am protected.