Thousands of British savers with Landsbanki Guernsey may not get their money back, it emerged today.

The bank, a subsidiary of Icelandic bank Landsbanki, which has been taken over by the Icelandic Financial Services Authority, did offer some of the best rates on offshore savings accounts. But now savers in both the UK and the Channel Islands are unable to access their money.

There is no deposit protection scheme in Guernsey, and Landsbanki Guernsey is not covered by either the UK’s Financial Services Compensation Scheme (FSCS), or Iceland’s protection scheme, because it is registered in Guernsey.

Deposits with Landsbanki’s UK based subsidiary, Heritable Bank, have been taken over by ING Direct, whilst UK customers of Icesave, the online arm of Landsbanki, have had all of their deposits guaranteed by the Treasury. But today a Treasury spokeswoman said the plight of British savers with Landsbanki Guernsey was “a matter for the Guernsey Government.” A spokeswoman for the FSCS, which guarantees deposits of up to £50,000, confirmed the scheme does not apply to banks based in the Channel Islands.

Desperate savers are unable to contact Landsbanki Guernsey and have only been provided with a short Q and A on the bank's website that states: “The Administrator will be working towards an orderly repayment to depositors... (but) we cannot say how much or when.”

Today an action group entitled “I want my money Landsbanki” was set-up, with thirty members signed up on the website. One Guernsey resident wrote on a message board: “We had £65,000 in a one-year bond with Landsbanki Guernsey after it advertised a 7 per cent interest rate. That was all our life savings and we are devastated. We just had a baby two weeks ago and now the joy has turned into a despair.”

Many British savers have been attracted to Landsbanki Guernsey due to its high interest rates - its 45-day notice account was offering 6.75 per cent - and the beneficial tax arrangements of having an offshore account, whereby savers can defer receiving interest income to fit around tax liabilities. Many offshore accounts are also specifically designed for expatriates.

But many depositors may not have realised that money held in the Channel Islands is not protected in the same way as UK-based banks.

This week the Guernsey Treasury and the Guernsey Financial Services Commission, the financial regulator, have been in emergency meetings to develop a new deposit protection scheme. “Firm proposals” for a scheme are expected in November, but it will be too late to cover savers with Landsbanki Guernsey.

A spokesman for the Guernsey Financial Services Commission refused to comment on the safety of Landsbanki deposits, saying only: “It is anticipated that Landsbanki Guernsey’s administration will help to ensure that all depositors in the bank, including those with deposits which can be withdrawn immediately and those who are locked into fixed term deposits, have an equal opportunity to have their funds returned.”

Today the Isle of Man Treasury Department announced it was increasing the deposit protection for both local and international savers from £20,000 to £50,000. The news came as the Icelandic Government took control of Kaupthing, Iceland’s biggest bank, which had an online arm, Kaupthing Edge, based in the Isle of Man.

Jersey has “a political guarantee” covering the full bank deposits of all Jersey residents whose bank is licensed with the Jersey Financial Services Commission – but this would not cover UK savers with money in a Jersey-based bank account.

Case study

David and Judy Cook, originally from Cheshire, retired to Cyprus fours years ago and were advised to put their savings in an offshore account for easier accessibility. They have £52,000 with Landsbanki Guernsey.

Mrs. Cook, 58, said: “My husband spoke to Landsbanki Guernsey a few weeks ago and it assured us that all liabilities were covered by its parent company. We tried to withdraw our money on Monday afternoon but the bank went into administration on Monday night so we were too late. That money is our life savings and if we lose it we will have to sell our house.

“I can’t get through to the bank in Guernsey but I spoke to someone in Iceland who was very vague about whether we’d be able to get our money back. We are desperately worried. It was my husband’s 60th birthday yesterday but we have little to celebrate.”