Kent County Council says its decision to suspend investments abroad because of the crisis that has hit Icelandic banks could have a £6million price tag.

The authority put on hold any new deposits in foreign banks after it emerged that £50million it has invested with three Icelandic banks could be at risk.

Instead, money is being deposited with the Treasury until the outcome of an independent inquiry set up to investigate what happened is known.

While money invested with the Government is regarded as safer, councils who do so are earning less interest than they might do with banks abroad.

According to County Hall finance chiefs, if KCC maintains its policy, it could earn about £6million less in interest from investments.

The admission came at a County Hall meeting on Wednesday where a cross-party watchdog committee quizzed the politician in charge of KCC's money over what had happened.

Cllr Nick Chard (Con), KCC's cabinet member for finance, told county councillors the policy to suspend foreign investments and put money on deposit with the Government could have implications for the authority's budget.

"While [the money] is safe, it does have correspondingly lower interest rates and that will have an impact on the council's budget because the interest has [previously] helped offset increases in the council tax," he said.

Asked to quantify the potential impact for council taxpayers by Conservative backbencher Cllr John Simmonds, KCC finance director Lynda McMullan told the meeting: "There is a significant difference in the interest rates that we would receive...if we moved all of our money, the cost would be about £6million."

KCC still has about £163million still invested in foreign banks but it is still unclear when and if it will get all of its Icelandic money back. Negotiations involving councils and Treasury officials are continuing about how to resolve the crisis.

Cllr Chard, who sidestepped a Labour question about who should take the rap for KCC's decision to invest in Iceland, said it remained unclear whether all the money would eventually be recovered.

However, he pledged to make public the report KCC had commissioned from independent auditors Price Waterhouse Cooper.

KCC's financial advisers, who had been invited to answer questions from councillors, did not attend the meeting.

Representatives of the firm Butlers said they wanted to wait until KCC's investigation was completed before coming to be quizzed.