Tuesday, 7 October 2008

The Banking Crisis Gets Real

Icesave - the Internet only bank closes its virtual doors.
Will UK savers get their money back?

UPDATE 8.20am 8th October - The UK Chancellor Alistair Darling, speaking on BBC R4's Today programme, has just reassured UK savers they will get their money back - not from Iceland as they don't have the money, but from the UK.

I've been watching the financial crisis with increasing disbelief. Only this morning I told my partner that recent developments were so dramatic that perhaps now was the time to do something rather than simply watch. I'm working with some people who, like many, still think the meltdown is about city types, not you and me. Yesterday I tried to explain how it mattered.

That was then. Late this morning I noticed that Icesave had closed its Internet site down, so UK savers, of whom there are 300,000 can't get their cash. The Icelandic parent bank has gone into government receivership. One of my colleagues looked up from his work, his face pale. 'You're kidding' he said. His ISA is with Icesave. He'd previously researched how his savings were protected, but now he felt pretty insecure. Finally, for one of the most sceptical people among our team watching close by, the banking meltdown took on a human dimension.

Martin Lewis, the website moneysavingexpert has regularly tipped Icesave as a top interest payer. I was looking at his website this morning. Tonight C4's Jon Snow grilled him on his 'irresponsible' role. Unfair, but with 15,000 worried comments on his forum many of his readers must feel mugged. Elsewhere Martin makes the point that many of these accounts were ISAs. ISAs were set up by the Government to encourage people to save. The Government cannot afford to let them lose that money - whether the bank is in Iceland or the UK.

UK customers of Northern Rock and Bradford & Bingley had their savings safeguarded. This is the first time the banking guarantees have kicked in. If they don't work we'll all start wondering where to put our money. No government can afford a run on the banks - which is what happens when we lose faith in the banks and start stashing our cash under the mattress.

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