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Tens of thousands of British savers whose deposits were frozen when the Icelandic bank Icesave collapsed this month will start to get their money back in the next 10 days.
The Financial Services Compensation Scheme (FSCS) said last night it had put in place "an accelerated process" to start making repayments and aims to complete the process by the end of November.
Last night's announcement ends almost three weeks of uncertainty during which affected savers have become increasingly frustrated at the lack of news from the Treasury and the FSCS. The FSCS said it would begin contacting customers to tell them how and when they will be able to withdraw their money.
More than 300,000 savings accounts holding an estimated £4bn have been frozen since Icesave's parent, Landsbanki, went into receivership on October 7.
After Iceland allegedly refused to meet its compensation obligations, the UK chancellor vowed that no saver would lose money as a result of Icesave's failure. But since then there has been no news. The company's UK assets were frozen using anti-terror regulations.
Iceland, the first sovereign victim of the global financial crisis, said yesterday it would borrow £1.3bn from the International Monetary Fund, but the prime minister, Geir Haarde, said the country would need several billion more to resolve its financial problems.
The FSCS said it had been working on a process that would allow former Icesave customers to electronically transfer their money back to their host bank account, almost as if they were making a withdrawal in the normal way. The payments will be phased over several weeks, and the FSCS said there would be no forms to fill in.
Loretta Minghella, chief executive of the FSCS, said: "We have been working hard to establish a way of compensating retail depositors of Icesave without the need for a paper-based application process. We will be contacting retail depositors to tell them how the transfer process will work and when they can access the system. We recognise that Icesave's customers have been anxious about their savings. We would like to thank them for their patience."
FSCS is working closely with the Newcastle Building Society, which provided Icesave's online banking facility.
Some savers had hundreds of thousands of pounds in Icesave accounts and thought they had lost all but the compensation limit of £50,000. They also faced claiming the first £16,000 from the Icelandic compensation scheme before it emerged that the money wasn't there.
Under the terms of the compensation scheme, savers will get their savings plus interest due up to the day the bank was declared in default, October 8.
The FSCS has already stepped in to help more than 2.7 million UK consumers as a result of the recent problems at Bradford & Bingley, Heritable and Kaupthing Singer & Friedlander.
Savers who had money in the Icelandic banks through offshore accounts have not fared so well. More than 2,000 customers with Landsbanki Guernsey have been told they will receive just 30% of their savings back from the failed bank. Those who had accounts with Kaupthing Isle of Man face a long wait to get their money back.
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