‘Shaking with worry’: What happens to savers when banks collapse?

Rebecca Joyce lives with her partner in Sutton and, 10 years ago, suffered the dizzying realisation that her bank had shut off her access to her hard-saved cash.

“I had a high interest savings account with Icesave that we’d opened up just after my husband and I got engaged,” explains Rebecca Joyce.

The Icesave bank had been popular with British and Dutch savers, thanks to the high interest rates it offered on their deposits. But when the bank’s parent company Landsbanki went bust amid the global financial crisis of 2008, those savers found they couldn’t get their hands on their cash.

When Rebecca tried to move money in her account, the bank’s website showed a simple, blunt message: “We are not currently processing any deposits or any withdrawal requests. We apologise for any inconvenience this may cause our customers.”

“One day I tried to log into my Icesave account to transfer some money across but it wouldn’t let me access it.”

That would be a fairly earth-moving event for most savers, realising they could no longer get access to their cash. Many took to online forums to express their shock and dismay, with many questioning whether their money would be protected by UK or Icelandic authorities. Some feared they would lose the substantial sums that many had saved into the overseas bank.

Rebecca stayed calm, knowing that she should have protection in place, but other people began to panic.

Speaking at the time of the collapse, Mike Davis told the BBC that he, his partner and his daughter all had substantial savings held in Icesave and that he was “shaking with worry”.

“This cannot have come at a worse time. It is a pretty devastating blow,” he said. “I haven’t slept for a couple of days. This was money put away for retirement.”

One customer, Louise Whitlock, told The Telegraph that she had moved £13,000 into an Icesave bank just a few weeks before: “With hindsight, I feel very unlucky. But it was offering a very good rate and Nationwide was paying just 4 per cent.

“I am now full of trepidation about whether I will get my money back.”

But help for the bank’s many savers was available.

Rebecca says she was relatively confident she would get her money back through the Financial Services Compensation Scheme (FSCS) and therefore didn’t experience the worry that many savers did.

She said: “There had been a lot of talk in 2008 about banks going under but that people shouldn’t panic and withdraw their money because the FSCS would be able to help you.

“So, I didn’t panic too much when I found out I couldn’t log on and access my money because I knew that I should be able to get it back through the FSCS.

“The FSCS were really good when I claimed my money back, they were really quick. They sent me a form by email within a couple of weeks and the form only took about 10 minutes.

“I think it’s really important to know if the banks are covered by FSCS before you invest any money in them. The FSCS can help you get your money back in the unlikely event that your bank goes under and I would definitely recommend that other people look into the FSCS and what it can offer you.”

After the event and the compensation, the FSCS revealed it had paid out an average of more than £15,000 to each Icesave customer. In total, it paid out just over £4.5 billion to almost 230,000 customers – although it was able to claim its costs back from the Landsbanki estate years later.

Speaking five years after the event, Mark Neale, chief executive of the FSCS, said: “For many people, the collapse of Icesave was the moment at which the credit crunch became very real. The experience of Icesave customers proves that when people needed help, FSCS was there.

“However, our research continues to show a lack of understanding and knowledge about the protection we provide. We want to reassure the vast majority of people that their money and savings are safe, and warn those who unwittingly put their money at risk.”

Since the financial crisis the compensation limit has increased from £50,000 to £85,000 per person, per institution.

“If I was going to make any future investments in any other banks, I would always check they were covered by the FSCS,” added Rebecca.