The group protecting UK savers has begun to return money to thousands of people affected by the collapse of Icelandic bank Kaupthing Singer and Friedlander (KS&F).

Around 3,500 savers should receive compensation from the Financial Services Compensation Scheme (FSCS) this week, with the remaining customers being paid as quickly as possible after this.

The compensation bill covers all money lost by individuals and not just the first £50,000, as is usually the case, and will total £500 million.

Around 100 people received their money before Christmas after they were identified as being priority cases.

But the compensation process has been far slower than that for depositors who lost money in internet bank Icesave, which was part of Icelandic bank Landsbanki. The majority of those received their money before Christmas.

Because the KS&F accounts were not internet ones, paper forms had to be sent out and completed by savers, meaning that the payout has been slower. Those who lost money through Icesave were able to use an accelerated online claims process.

The process has also been slowed down by the internal administration systems used by KS&F, with the group having issued only one account number to consumers who held several accounts with the group. As a result the FSCS has had to go through all of the bank's data manually to verify claims.

In addition, information on the accounts and their balances was only received from administrators Ernst & Young last week, as they had also had to verify the account balances manually.

The payouts are only being made to people who invested in KS&F directly. Those who held money with the bank's internet arm Kaupthing Edge have had their accounts transferred to Dutch savings bank ING Direct.

People who had fixed-term deposit accounts with KS&F will have to wait until their account has matured before they receive their money.

People who invested in KS&F direct will receive a total of £500 million, with a further £2.5 billion transferred to ING Direct for Kaupthing Edge accountholders without them having to go through the application process.

Copyright © Press Association 2009