Personal Finance: Expatriates who opened offshore saving accounts with a building society fear their life savings have been wiped out in the Icelandic banking crash.

Expatriates who opened offshore saving accounts with a building society fear their life savings have been wiped out in the Icelandic banking crash.

They deposited in the former Derbyshire Building Society's offshore account and were promised a "100% binding guarantee" from Kaup thing Singer & Friedlander in the Isle of Man when it took over Derbyshire Offshore only last November.

The bank's assets are now frozen and depositors are at the mercy of administrators, and although in theory they are covered by the Isle of Man's compensation scheme which last week lifted its ceiling from £15,000 to £50,000, in fact the scheme is as yet unfunded.

Depositor Mike Harrison, who fears he has lost his entire savings of £250,000, told The Herald: "When we heard the news it was like someone telling us you have only three months to live. It was like being told you have a terminal illness."

His son Nick, a business manager with a major drugs group in Glasgow, said: "There is this attitude that they are investors and they are offshore as a tax dodge and this sort of nonsense. These are people with their life savings who by no fault of their own are not allowed to have UK savings accounts."

Some of the stranded savers had temporarily deposited the proceeds of selling their UK homes, putting their entire assets at risk of destruction, and one in three is thought to have lost between £100,000 and £250,000.

Following the launch of a website campaign involving hundreds of distressed depositors, the UK government this week agreed to make representations to the Icelandic government on behalf of the Isle of Man.

The savers' deposits with Kaupthing, which although collected offshore were largely invested in the UK, are however part of Icelandic assets frozen by the UK government in its bid to help compensate UK-based savers, councils and charities.

Nick Harrison added: "I am not optimistic. From my understanding, the government is pretty much robbing Peter to pay Paul."

His father said: "We left the UK in 1992 and went to Hong Kong to work on the mass transit railway project, in 2001 we moved to Singapore. We had opened an account with the Derbyshire building society in about 1993 because they were offering reasonable rates of interest - we are not into high-risk securities, it was a building society."

On a visit home in 1996, Mike tried to open a UK savings account, but every bank turned him away. "Without a UK utilities bill, they wouldn't entertain it."

In a letter to the government this week, the campaigners pointed out that when Kaupthing bought the offshore business from the Derbyshire, a society which has since been bought by Nationwide, "it was required to accept an irrevocable and binding undertaking to guarantee depositors' funds that Derbyshire Offshore Limited had maintained".

A memorandum to this effect was lodged with the Isle of Man government and the guarantee appeared prominently in all bank literature.

The letter goes on: "We as many other savers in (these banks) are UK citizens although non-resident, we therefore pay UK taxes on our incomes. Many savers cannot open UK or mainland European based bank or savings accounts without a UK or EU domicile address, and whilst in the process of selling one property and buying another within the EU are forced to use offshore facilities."

It says the actions of the UK in seizing Icelandic assets "led directly" to the Isle of Man businesses (Kaupthing Edge IoM and Kaupthing Singer and Friedlander IoM) being forced into administration, and adds that the UK takes responsibility for foreign affairs for the Isle of Man.

The campaigners want pressure put on the Icelandic authorities to extend 100% protection to the offshore savers, and not to block any recent transfers back to UK bank accounts.

The letter ends: "If IMF or EU support is to be given to Iceland I would hope this is made conditional on Iceland meeting its international commitments including savers."

On the difference between the UK and Isle of Man investor protection regimes, Mike admitted: "We didn't actually know that, to be honest, we didn't really understand what the Isle of Man guarantee was, the fact that it was actually a parent company guarantee."

The compensation scheme, intended to be funded by a 0.125% of assets levy on Isle of Man banks, as yet had "nothing in the kitty", he added. "The real issue is that the UK government is not responsible in law ... but when they bailed out Bradford & Bingley they agreed to honour the accounts of all the depositors in the Isle of Man."

The Manx government has said the UK government has agreed to push Iceland on its behalf to honour the guarantees given by Kaupthing, which has been nationalised. Administrator PricewaterhouseCoopers said it was looking to sell Kaupthing's loan book to recover as much as possible for investors.

Meanwhile, administrators to Landsbanki Guernsey, where there is no investor protection scheme, have said 455 UK savers with an average £85,000 deposit will receive an immediate 30p in the pound initial payment, and it hopes to return more in due course.

More than 1200 investors who bought offshore bonds through Aegon Scottish Equitable, Royal Skandia and AXA also stand to lose their investment in Kaupthing Singer & Friedlander Isle of Man.

The life companies were used as a vehicle by some financial advisers to buy for their clients a Kaupthing investment bond, which is classified as an investment risk. As much as £170m may be at risk.