The closure was triggered by the FSA, the Southsea's regulator A small bank operating in the Portsmouth area has been shut down by the financial authorities.The Southsea Mortgage and Investment Company, with just 270 savers, was closed by the Financial Services Authority and the Bank of England.
The Southsea, which lent to house builders, had been trying to wind itself down after losing money following the 2008 banking crisis.
The accountancy firm BDO has been appointed to liquidate the bank.
Savers, who have ?7.4m on deposit, will get their money back from the Financial Services Compensation Scheme, which will pay out up to its limit of ?85,000 per saver.
"In order to minimise disruption and to provide access to funds, the FSCS intends to make its payout as quickly as possible," the Bank of England said.
"Retail depositors do not need to contact the FSCS to receive a payout as the FSCS will be contacting them."
The FSCS said it would pay out "in days".
The FSA had been keeping a close eye on the Southsea's attempt to wind itself down but stepped in because the bank had been struggling to raise money.
"Southsea was a small bank with a portfolio of lending to fund housing developments in the local area," the FSA said.
"The bank's management have not been able to realise the value of Southsea's loans to fund these developments."
The bank operated from one office in North Street in Havant.
Borrowers with mortgages or other loans have been told to keep making repayments as normal.
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