Icesave freezes deposits and withdrawals

The internet bank Icesave has suspended all deposits and withdrawals from customers' accounts after the Icelandic authorities stepped in to rescue its parent company Landsbanki.

Landsbanki's other UK operation Heritable Bank has also stopped savers making withdrawals and is no longer offering mortgages.

Between them the two brands have more than 300,000 customers in the UK, with Icesave winning savers with its high interest rates on savings accounts and Isas.

Today a statement on its website said: "We are not currently processing any deposits or any withdrawal requests through our Icesave internet accounts. We apologise for any inconvenience this may cause our customers. We hope to provide you with more information shortly."

Although Landsbanki is set to continue trading as normal in Iceland, it is not clear what will happen to Icesave or Heritable Bank in the UK, but the Financial Services Compensation Scheme has said it is preparing for the bank to go into default.

A message on its website tells consumers: "The Financial Services Authority in the UK has reported that Icesave is now expected to go into insolvency proceedings in Iceland and this would trigger an FSCS default."

Yesterday, Icesave's website went down and its UK call centre is reported to have received unprecedented volumes of calls from savers worried about the safety of their cash.

But a spokeswoman for the group insisted that call volumes had been normal and the website was down due to technical difficulties.

Concerns about the Icelandic economy came to a head yesterday, and the Icelandic government last night presented an emergency bill giving it sweeping powers over the nation's banks.

This morning the Icelandic Financial Supervisory Authority (IFSA) announced it was taking control of Landsbanki, as it became the latest victim of the credit crunch.

The IFSA said domestic deposits were fully guaranteed by the government, and that "Landsbanki's domestic branches, call centres, cash machines and internet operations will be open for business as usual".

Hilary Osborne and Miles Brignall