Claims from depositors will have to be made to the Financial Services Compensation Scheme (FSCS) should the bank be unable to meet its liabilities.
Commenting on the situation Sharon Bratley, Chartered Financial Planner at Fairinvestment.co.uk, said: "Iceland's banking system has become the first to crumble under the financial turmoil that is currently sweeping the globe. Emergency moves were made yesterday to give Iceland's equivalent of the UK Financial Services Authority the power to do whatever it takes to resolve the dangerous situation, and, as a result, Iceland has put Landsbanki, the owner of UK bank Icesave into receivership."
"The news will be very worrying for UK savers with money in Icesave, and, unfortunately, the deposit guarantee scheme is complicated because it is an Icelandic bank and thus a firm in a European Economic Area (EEA) that has 'passported' itself into the UK financial services system and is not wholly regulated by the FSA.
"As a result, Icesave (Landsbanki) has a top-up agreement with the Financial Services Compensation Scheme (FSCS), whereby savers with Icesave will have to claim the first €20,887 directly from the bank's home country, in this case Iceland. The FSCS has then agreed to 'top up' anything above this amount to the agreed deposit guarantee at the time, which is now £50,000."
Mrs Bratley added: "However, the worry is that as the Icelandic Government picks up the pieces of its banking system, the money just won't be there to pay out a saver's first €20,887."
And, according to reports from Fool.co.uk, if this does happen, the FSCS will only pay out anything in excess of the first €20,887, which may not cover the majority of savers.
"Unfortunately, all that savers with money in Landsbanki's Icesave can do is wait and see what happens. However, this serves as a reminder to Brits to check the deposit guarantee that certain banks are tied to and how this can affect savings account compensation".
