Kaupthing Edge and Icesave FCSC deposit protection guide
With the dramatic threat to the Icelandic banking system, a lot of UK savers with Icelandic Kaupthing Edge and Icesave are now looking at how their savings will be protected.
Kaupthing Edge customers can be assured that the company operates as a UK bank, and therefore is subject to the Financial Services Compensation Scheme (FCSC) which now protects customer savings up to £50,000.
For join account holders, this means that this doubles up to £100,000.
However, if you own multiple bank accounts at Kaupthing Edge, only your first £50,000 in total is fully protected under the FCSC deposit protection scheme.
The situation is different for Icesave customers, which is treated as an overseas bank, and savings protection for Icesave comes under what is known as a “Passport Exemption” scheme.
This means that responsibility for the first 20,887 euros in the account (approximately £16,000 at the current exchange rate) is covered by the Icelandic government.
The different between that figure and the £50,000 under the FSCS scheme is then covered by the UK government.
In other words, if Icesave were to collapse, the first £16,000 or so would need claiming from the Icelandic government, with the rest claimed from the FSCS.
Are Kaupthing Edge and Icesave likely to go bust?
Certainly there is a lot of fear around the Icelandic banking situation at present, and savers have grounds to raise concerns.
However, an interesting difference between Icelandic banks and UK banks which could make them potentially stronger is that the countries of Iceland, Norway, Sweden, Denmark, and Finland have a Memorandum of Understanding which states if any country has difficulty with such protections, the others would step in to cover it.
Additionally, these banks have been paying into a reserve fund, so there are potential funds already available in the event that Kaupthing Edge and/or Icesave were to collapse.
It does remain worth underlining that the existing situation in the financial services sector is extraordinary though, and the current promises on deposit protection remain untested.
What is especially worth bearing in mind is that much of the stress being put on the banking sector is based on fear perception, ie, the fear that one or more banks may not be able to properly cover its financial obligations.
So fears relating to the state of the banking system may be quite unfounded.
How to protect yourself
We’re not at a stage where anyone need worry about their savings up to £50,000 – certainly not yet. But it is certainly worth considering splitting your risk if you do have savings with any single bank that are over the protected £50,000 mark.
While most banks can still be seen to be reasonably safe, market uncertainties do mean that there remains a risk to those saving with a single bank with a sum of more than £50,000.
Therefore if this applies to any individual’s situations, then they certainly should consider spreading their savings across multiple banks.
This way they have a greater likelihood of ensuring full protection for all of their savings amount, so in the event of any one bank saved with failing, the FSCS protection will come into play.
Whether any current perceived fears regarding the banking sector remain justified or not, the extensiveness of the FSCS protection means that individuals should seek to ensure they are protected as much as possible, for their own sake.
This is not professional investment advice – this is simply a way of spreading risk, and in the world of investing, is also known as common sense.
UPDATE: If you are able to withdraw your money from Kaupthing or Icesave, you might want to read our latest article on Which are the Safest UK Banks.