200,000 UK savers hit by bank crash

More than 200,000 British savers face a fight for their money after a bank collapsed today.

The failure of Iceland-owned Icesave is almost certain to trigger the first compensation claim since the start of the banking crisis. It will run to billions of pounds, making it the biggest test of Britain's compensation scheme.

It came on a day of turmoil in the City as billions were wiped off the value of UK bank shares with HBOS closing 41.5 per cent down and Royal Bank of Scotland 39 per cent down.

The vast majority of Icesave savers will get their money back within three months under Icelandic and British schemes that guarantee deposits up to £50,000. But those who have more in their accounts face losing some of their money.

Their only hope of getting the rest of their money back is joining the list of creditors of its failed parent, Landsbanki, Iceland's second biggest bank. It was nationalised by the Reykjavik government today as part of emergency measures.

Icesave has £4.5 billion of savings in its British and Dutch online arms. The limit for claims was only lifted to £50,000 from £35,000 today. The first warnings that the bank was in trouble came last when the website crashed.

At 8am today it was suspended completely. A statement on Icesave's home page read: "We are not currently processing any deposits or withdrawal requests through our Icesave internet accounts. We apologise for any inconvenience this may cause our customers. We hope to provide you with more information shortly."

In a statement the UK's financial watchdog, the Financial Services Authority said: "If, as expected, the Icelandic authorities put the firm into insolvency proceedngs this would trigger a default under the Financial Services Compensation Scheme (FSCS).

"In this case savers with Icesave could make a claim to get their money back."

However, it was not clear when compensation claims would be triggered and how long they would take to process. Under EU law it is not supposed to take more than three months. A spokesman-for the FSCS said it was in talks with Iceland's financial supervisory authority about how claims would be made.

It is not clear yet whether savers will have to make a claim under the Icelandic system, which has a limit of £16,300 and a separate one under the British scheme.

It is the biggest collapse of a mainstream savings bank in Britain - with the exception of Bradford & Bingley last week - in living memory.

One dismayed customer Mike Davis, 62, has £75,000 in retirement savings locked up in an Icesave account.

His daughter also has savings there and his partner, Pam Henson, 67, has £23,000 with the same bank.

The couple are getting married on 1 November, and Mr Davis, who lives in Gloucestershire, said he was "shaking with worry" when he heard about problems with Icesave.

Mr Davis, a landscape gardener, said: "This cannot have come at a worse time. It is a pretty devastating blow. I haven't slept for a couple of days. This was money put away for retirement."

Iceland's government confirmed that Landsbanki had gone into receivership and would be taken over by the Icelandic following emergency banking legislation that was passed last night.

In a statement the regulator said: "Domestic deposits are fully guaranteed, as declared by the government.

"Landsbanki's domestic branches, call centres, cash machines and internet operations will be open for business as usual. The objective of the IFSA's action is to guarantee a functioning domestic banking operation." Icesave gained popularity in the UK with its high interest rate of 6.10 per cent on its easy access ISA and 7.06 per cent on its fixed-rate savings account, after 12 months.

The Reykjavik authorities attempted to stabilise the economy by announcing that it had secured a 3.1 billion loan to bolster its foreign exchange reserves.

The move comes a day after trading in shares of major banks was suspended. The Icelandic krona fell a quarter against the euro. Iceland's slide towards national bankruptcy has left a huge shadow over some of the best known names on Britain's high street.

Businesses ranging from Hamleys to French Connection have all been bought up or backed by Icelandic businesses in a remarkable spending spree over the past decade.

Baugur, the most aggressive Icelandic corporate raider, has issued a statement aimed at reassuring staff, banks and suppliers.

'I have no idea if my money is safe'

DAISY Dumas is one of the savers hit by the Icelandic banking crash.

The 27-year-old editorial assistant, pictured left, from Queens Park, opened a savings account with Icesave last year and is now unable to withdraw her money.

She said: "I have £800 in a highinterest account which I was saving to go away travelling. There's no information on what is going to happen. I keep checking the Financial Services Authority website but there is nothing on there yet. I did a lot of research before joining Icesave. It was offering an interest rate of 6.4 per cent, which was great.

"Up until yesterday the bank was assuring its customers that everything was ok and then this happens. There's nothing I can do apart from just sit and wait now."