As the Cypriot Government prepares to introduce a levy on savings in its banks, here's what this means.
Cyprus is in turmoil after its government imposed a high banking levy on its savers, sparking fears of mass withdrawals, also known as a run, on its banks.
A banking levy was agreed as one of the conditions of a €10 billion (£8.6 billion) bailout by the European Union and International Monetary Fund.
But the Cypriot Government sparked anger by proposing that savers would be charged a one-off fee of 6.75% on savings of up to €100,000 and 9.9% on savings over that amount. Savers will be compensated with the equivalent value of shares in the banks.
The EU and IMF are keen to not be seen to be bailing out the Cypriot banks without any strings attached.
What this means for expats and people working in Cyprus
And that means a cost for the estimated 25,000 UK expats living in Cyprus, plus UK troops and Government employees. However, the UK Government says it will compensate service personnel and Government workers.
What this means for people living in the UK with money in Cypriot banks
[SPOTLIGHT]However, people living in the UK with savings in the UK arms of two Cypriot banks – Bank of Cyprus UK and Laiki Bank UK – are not affected by the levy.
Both banks have confirmed that savers will not be penalised and savers’ money held are protected by compensation up to a limit of £85,000 under the UK FSCS (Bank of Cyprus UK) and €100,000 under the Cyprus Deposit Protection Scheme (Laiki Bank UK).
Mark Neale, Chief Executive of the FSCS, said: "I am emphatic that people [in the UK] will not lose a penny of their savings in this way."
The risk of foreign banks
This situation does highlight again the potential risk in saving in banks in foreign countries, which was laid bare by the Icelandic banking crisis of 2008. Read Think twice about saving in foreign banks for more on this.
It also underlines that you should think very carefully about holding more than £85,000 with any UK institution (bearing in mind some may own several banks and/or building societies), as any money over that amount is not guaranteed by the Government. Take a look at Who owns your bank or building society? for more information on who owns who.