Who gets the last laugh?

January 23, 2009

Public critisicm may be heating up against banking executives being rewarded with huge bonuses despite taking too much risk (especially ex Merill Lynch head John Thain who requested a bonus and spent $1,405 on a garbage pail during a $1.22 million renovation of his office).

However, there are smaller fish who are being rewarded after doing something similar — taking too much risk and choosing the wrong bank in which to put their deposit. We’re talking about those who deposited in the collapsed Icelandic bank Landsbanki.

Around 300,000 British savers had accounts worth some 4 billion pounds in Landsbanki’s online savings provider Icesave, which offered competitive interest rates of up to 7-plus percent.

Britain has promised domestic Icesave savers would get all their money back via Britain’s Financial Services Compensation Scheme, a statutory body that acts as a fund of last resort.

FSCC offered depositors options of getting all their money back or leaving fixed term savings until maturity.

Those who chose the latter, late last year, are set to receive the full interest promised by Icesave — all 7-plus percent of it.

Since then, benchmark UK interest rates have gone down as low as 1.5 percent (and expected to hit 1 percent next month).

2 comments

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Who laugh later laughs alone or lonely.

Getting back the balance of money held in a failed bank at the time of failure, within the limit current at the time of failure, is fair enough.

Continuing to earn interest on balances which have in real terms ceased to exist except on FSA paper, is simply another example of how the UK government is prepared to squander taxpayers’ money in its efforts to buy votes.

Posted by Jason | Report as abusive