The Southsea Mortgage and Investment Company has been shut down by the industry regulator.
The Financial Services Authority closed the Portsmouth-based bank after it struggled to wind down its business following economic pressures.
The bank had just over 250 depositors and retail deposits of £7.4 million when it was closed.
The Bank of England said the closure "follows a deterioration in the bank's financial position as a result of management decisions and the firm's specific business model".
Savers will receive a payout from the Financial Services Compensation Scheme (FSCS), which protects deposits up to £85,000. The FSCS intends to make its payouts as quickly as possible.
Retail depositors needn't contact the FSCS as they will be contacted in due course. In the meantime, further details about payouts can be found at fsa.org.uk or by calling the FSCS on 0800 678 1100.
Depositors who are not covered by the FSCS or who have savings above £85,000 will be able to claim for what they are owed by calling the insolvency liquidator, BDO, on 020 7486 5888.