Lines formed at many ATMs as people scrambled to pull their money out after word that the £10 billion rescue package Cyprus agreed with its euro area partners and the International Monetary Fund included one-off levy on deposits - an unprecedented step in the eurozone crisis.
Britons with bank accounts in Cyprus face a hit on their finances following a bailout agreement with international creditors that includes a levy on all the country's bank accounts.
But their attempts to avoid or lessen their tax burden by withdrawing cash now appeared to be in vain. Cypriot bank officials said that depositors can access all their money except the amount set by the levy, and officials added that withdrawing funds would not reduce anyone's levy.
European officials said people with less than £100,000 in their accounts will have to pay a one-time tax of 6.75%, those owning more money will lose 9.9%. The levy is expected to raise £5.8 billion. There are 59,000 British residents in Cyprus and 1.1 million Britons visit the island every year, the Foreign Office said.
Bank of Cyprus UK said on its website: "Whilst the measures agreed include an up-front one-off stability levy on deposits in Cyprus, there is no effect on deposits with Bank of Cyprus UK Limited which is a UK bank. Bank of Cyprus UK Limited is a separately capitalised UK incorporated bank, is subject to UK financial regulation, and eligible depositors are protected by the UK's Financial Services Compensation Scheme."
Laiki Bank UK said on its website: "Your eligible deposits with Laiki Bank UK are protected up to a total of 100,000 euro by the Cyprus Deposit Protection Scheme and are not protected by the UK Financial Services Compensation Scheme. Any deposits you hold above the 100,000 euro limit are not covered."
Cyprus' Finance Minister Michalis Sarris defended the decision to accept the levy, saying it was either that or a complete economic meltdown. "This was the least worst option," he told state broadcaster CyBC. "We battled to prevent the country from completely going bankrupt."
There are approximately 3,500 British military personnel based in Cyprus and there are fears over how this development will affect them. An anonymous British serviceman contacted Sky News to say: "Service personnel have no way of reaching their money and all electronic transfers have been barred by the Cyprus banks. Service personnel and their families are furious but can do nothing."
British expat David Symonds told the same channel: "The view is that the timing is cynical. It's a long weekend here. Electronic banking links have been closed. Monday is a public holiday. Banks don't reopen until Tuesday, when they do there will be queues of people on the pavement waiting to get their money out. Tempers could get frayed. Those frayed tempers could well lead to violence."
The expat added: "We were assured only a few days ago, that firstly the haircut on the deposits or the bail in as some people call it was a red line for the government, and then when we learned that it might become a possibility we were told that it would only be on deposits above 100,000 euro (£87,000). Now of course we know that if affects everybody."