Savings confusion - Q&A

With many Icesave customers struggling to get through to advisers at the collapsed bank or the Financial Services Compensation Scheme (FSCS), confusion and concern exists about how and when they'll be able to access their money. The crisis in Iceland has also focused the attention on the security of savings for those with money in other institutions. We aim to clear up some of the confusion by answering the key questions.

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I'm an Icesave customer - when will I get my money?
The exact details of how the compensation process will work have yet to be clarified but the Government has said claims will be processed as quickly as possible and that savers should get their money back within weeks rather than months.

The first €20,887 (about £16,700) will be repaid by the Icelandic compensation scheme with the remainder, up to £50,000, paid by the FSCS here in the UK.

Some reports suggest that savers will not have to lodge a claim and that the FSCS will process everything automatically. However, we spoke to the FSCS this morning and they could not confirm that. They said that practical arrangements of how customers will be compensated have still to be finalised and that it hopes to publish further details for Icesave customers on its website by the close of business on Friday 10 October. It has also set up a dedicated help line for people to call: 0845 730 0131.

I've got more than £50,000 in an Icesave account. Will I get all my money back?
Yes. The FSCS gives 100% protection to the first £50,000 held with a savings provider. Under normal circumstances this would mean savers who have more than £50,000 with the same institution lose the amount above the cap. However, the Government has confirmed that in the case of Icesave customers, it is making an exception and that no one will lose any of their savings.

Again, we are still awaiting clarification on exactly what savers with more than £50,000 in their Icesave account should do, but the FSCS will arrange compensation for the first £50,000 and the Treasury will refund anything above that.

Will I get interest refunded?
This is one question we don't yet know the answer to. The FSCS has not confirmed whether or not Icesave customers will have interest refunded or whether they will get only their capital back. It is hoped that this issue will be addressed when it publishes more details tomorrow.

What about Isas?
There were concerns that savers who have a cash Isa with Icesave would lose the tax-free status of their money but the Treasury has stipulated that this is not the case. If you have a cash Isa with Icesave you will be able to reinvest the entire amount into an Isa with another provider and will not lose the tax break.

What's happened to Kaupthing Edge and Heritable Bank accounts?
The £3billion that is held by British savers in Kaupthing Edge - another Icelandic savings provider - and Heritable Bank - which was owned by the same bank as Icesave, Landsbanki - has been bought by ING, the Dutch banking giant. This means that most people with Heritable and Kaupthing accounts are now customers of its UK savings arm, ING Direct.

This is great news for these savers as it means their savings have now been secured and they will not have to claim their money through the FSCS, following the collapse of Kaupthing and Landsbanki. For more information, read our article ING Direct, from hero to zero and back again.

A minority of Kaupthing and Heritable accounts have not been bought by ING - these are non-internet savings accounts and savers with money in these products will have to claim through the FSCS. As with Icesave customers, the Government has confirmed that all money is safe - the first £50,000 will be repaid through the FSCS with the remainder being paid by the Treasury. This affects around 3,000 people who have accounts with Kaupthing Singer & Friedlander and 100 Heritable Bank customers.

I don't have an account with any of the Icelandic providers, but I'm really worried about the security of my savings. What should I do?
The Icelandic crisis has, not surprisingly, unnerved a lot of people. Fear can generate irrational behaviour, but there really is no need to panic.

Under the terms of the FSCS savings held with an FSA-registered provider are protected up to £50,000 (£100,000 for joint accounts). The fact that the Government has pledged to refund anything above that amount for Icesave customers suggests that it would do the same for other savers were another institution to run into the same problems. However, that is not guaranteed. It is therefore worth spreading your money around if you have more than £50,000 in savings.

The £50,000 protection applies per institution, not per account so you need to ensure that you diversify between different providers - you do not get double the cover if you have two accounts with the same institution. One thing you must watch out for though is providers that share the same FSA registration.

Halifax, Bank of Scotland, Birmingham Midshires and Intelligent Finance, for example are all part of the HBOS group. HBOS also provides the savings accounts for The AA and Saga. All of these brands share the same FSA registration which means that if you had savings accounts with Halifax and Birmingham Midshires only £50,000 would be protected. If on the other hand you had say a Halifax account and an HSBC account, you would have £100,000 of protection.

For more information on which institutions are part of the same group, read our article Who owns who?.

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Is there any way I can protect all of my savings and have the money invested with the same provider?
Yes. National Savings & Investments (NS&I) and Northern Rock savings accounts offer total protection, regardless of the amount invested because both institutions are Government-backed. However, their rates are not the best. Northern Rock has withdrawn its leading deals while NS&I cut some of its rates earlier this week. The rate on its Cash Isa, for example, was cut from 4.6% to 4.4% but you can earn 6.67% with Natwest's Cash Isa.

Another option is to invest with an Irish provider as the Irish Government extended its compensation scheme last week - it is now offering a total guarantee on any deposits held by retail savers until September 28 2010. Anglo Irish Bank and Bank of Ireland, which runs the Post Office's savings accounts, both offer products for UK savers. However, despite the 100% protection, savers should still be wary about investing in Irish accounts as there is concern that, with so much money flowing into Ireland on the back of this guarantee, the Government wouldn't actually be able to afford to cover all deposits in the event of the Irish banking system collapsing.

Click here to compare rates on savings accounts.

What protection do I have with an offshore account?
Savers with money in offshore accounts are not protected by the FSCS, as it doesn't cover the Channel Islands. Instead, the protection you get is dependent on the compensation scheme that is in place in the island where your money is held. Jersey for example, doesn't have a compensation scheme, although it announced this week that residents would have their savings protected - but this means that UK savers with money offshore in a Jersey account don't have any cover.

The Isle of Man, on the other hand, does have a compensation scheme which would cover all British savers with money there. Currently, up to 75% of £20,000 is protected, but the Isle of Man Government has announced this week that this is rising to £50,000.

Some British savers have money invested with Landsbanki Guernsey and there is uncertainty as to whether they will get any of it back following the bank's collapse. Guernsey doesn't have a compensation scheme, although it is planning to introduce one later this year or early next - not that this will be any comfort to Landsbanki savers. And while the UK Government has said it will ensure no Icesave customer will lose money now Landsbanki has gone bust, it has not extended this guarantee to British savers with offshore Landsbanki accounts. It is clearly a very worrying time for these people and we have put a call into the Treasury to find out whether or not the Government will guarantee their savings. We will update you on the situation as soon as we receive clarification.

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