Last Updated on August 12, 2024

The information contained in this article is for general educational purposes and should never be viewed as specific investment, tax, or legal advice.

In January 2017 the Israeli government opened an account for every Israeli child under 18 (“חיסכון לכל ילד“). Since then, money has been deposited in to these accounts each month and all children born are automatically enrolled in the program.

This article will explain how it all works, the choices parents need to make, and the special considerations for children who are US citizens. This guide is focused entirely on the government’s savings plan, for other ways to save and invest on behalf of your children, see here.

How it works

Bituach Leumi deposits 57 NIS (originally 50) each month on behalf of every Israeli child under 18. The funds are automatically invested into a specific track chosen by the parents. There are two main types of accounts for parents to choose from:

• A Kupat Gemel (also known as a provident fund, קופת גמל) managed by one of Israel’s major investment houses.
• A bank savings account (חיסכון בבנק) held at any Israeli bank.

Each account type offers different sub-tracks for you to choose from, discussed in more detail below. While you can switch between the different sub-tracks and investment managers, you can’t switch from a Kupat Gemel to a bank or from a bank to a Kupat Gemel.

When the child turns 18, they will receive an additional deposit of 500 shekel and are able to withdraw the money with parental consent. If the child refrains from withdrawing the funds until the age of 21, they will receive an additional 500 shekel and can then withdraw the funds without parental consent at anytime. Up until the age of 21, all investment management fees are paid by Bituach Leumi.

How do I choose a track for my kid?

Parents have 6 months from the date of birth to choose a track for their newborn child. Here is the link for choosing a track.

If you do not choose a track, your child’s funds will automatically be deposited to:

• Whichever track and account you chose for your previous child.
• If this is your first child or your didn’t choose previously, the default Kupat Gemel will be chosen at one of the investment houses. Currently, the default track is the “high risk” track. In previous years, the default track was set to be the “low risk” track.

Once you are placed in a Kupat Gemel, you cannot switch to a bank account. Don’t forget to make your selection and consider the options carefully before choosing (keep reading for more guidance)!

I just made Aliyah, now what?

If you have children under 18, they will be automatically enrolled in this program. You have 180 days from the date of Aliyah to choose a track for your children or they will be placed in the default track as described above. Here is the link for choosing a track.

Where can I find information about my child’s account?

Here is the link provided by Bituach Leumi where you can quickly get information about your children’s accounts. Input the Teudat Zehut of the parent who is getting the monthly child allowance (the default is the mother ). This tool will provide 3 important pieces of information:

• שם קופת הגמל/בנק – Where the money is being held (the name of the financial institution.)
• מסלול – What investment or bank track the funds are in
• סה”כ הפקדות ביטוח לאומי כולל מענקים – The total that has been deposited into the account by Bituach Leumi.

To get more detailed information or make changes to the investment/bank track, you will need to go directly to the specific bank or investment house listed in the “שם קופת הגמל/בנק” field (See more below on how to make changes).

What if you are a US citizen?

Unfortunately the Israeli Children’s Savings Plan is problematic for US citizens. The Kupat Gemel tracks are very likely considered PFICs. Owning PFICs can lead to costly accounting and punitive US taxation. For this reason, some US accountants recommended avoiding the Kupat Gemel option and choosing one of the banks accounts instead.

Despite the very low expected returns of the bank tracks, they are certainly much less complicated from a US tax perspective. In addition, it’s very hard to know if the greater expected returns of the higher risk investment tracks will really provide for a higher profit for the child once proper US tax reporting and payments are factored in. Helping your child avoid these future US tax headaches may be the higher priority here. Be sure to speak to your US accountant for more perspective on your personal situation.

Over the last 6 years, many US citizens have been automatically placed in a Kupat Gemel. Once you choose, or forget to choose, there is no way out. US citizens who are put by default into the “low-risk” track within the Kupat Gemel system may have the worst of both worlds – low expected returns + high expected taxes. In this situation, if the child is young, consider switching to the higher risk track within the Kupat Gemel system and consult your US account for further tips before the child turns 18.

It is also worth noting that if you and/or your child are required to file an FBAR, these accounts generally need to be included.

Should you increase the amount deposited each month?

All parents in Israel receive a monthly stipend from bituach leumi ranging from about 160-200 NIS per child – depending on how many children you have. You are entitled to reduce your stipend by 55 shekel each month per child and add that amount to the child’s savings account instead. For non-Americans, this can be a very simple way to invest more on behalf of your children and take greater advantage of this fee-free investment account.

US citizens should think twice before choosing to double the deposit given the poor choices available. This is especially true if you have a different account set up to be able to invest on the child’s behalf more efficiently.

Understanding the investment tracks

While there is certainly different opinions on this issue, using the bank option is generally recommended for Americans, while using the Kupat Gemel is generally recommended for everyone else. Let’s discuss what tracks are available for each category.

What tracks are available within the bank option?

The bank savings account is offered by most Israeli banks and is generally divided into 3-sub tracks for you to choose from:

1. Fixed interest rate (מסלול עם ריבית קבועה לא צמודה) – This track will have an interest rate that does not change for the duration of deposit. Keep in mind that this means the interest rate will not be adjusted if inflation or interest rates increase as they have recently. This might be the best best option if you expect inflation to go down and stay low in the near future.
2. Interest rate that adjusts based on the inflation index (מסלול עם ריבית קבועה צמודה למדד המחירים לצרכן) – This track is designed to protect the saver against future inflation and would likely have a higher interest rate than the first track in times of high inflation. In times of low inflation, the interest rate offered by this track would be very low. This might be the best option if you expect inflation to continue to rise.
3. Variable interest rate track (מסלול עם ריבית משתנה) – The interest rate of this track adjusts periodically based on the Prime Rate and offers some protection against inflation. This might be the best option if you expect interest rates to continue to rise.

Banks will generally allow you to choose the tracks above with “exit points” (תוכנית הפקדה עם אפשרות של תחנות יציאה כל 5 שנים) – where you can switch from one bank track after 5 years and move to another bank track. This allows you more flexibility to switch tracks based on economic conditions. There is no definitive way to predict which bank track will prove to be more profitable – your guess is as good as mine.

Use this tool to see who is offering the highest rate for each of the 3 options above.

What tracks are available within the Kupat Gemel option?

While none of us can predict the future and returns are not guaranteed, the general idea here is that the higher the risk the greater the potential reward. In other words, the trade-off for accepting more short-term risk and volatility is the expectation of higher investment profits in the long-run.

A Kupat Gemel is offered by many Israeli investment companies and there are 5-sub tracks for you to choose from:

• High-risk track – 75% or more in stocks.
• Medium-risk track – 30-40% in stocks with the rest in bonds.
• Low-risk track – 10-15% in stocks with the rest in bonds.
• Halachic track – funds supervised by Rabbinic authorities such as the Edah HaChareidis.
• Shariah track – funds subject to the rule of Shariah Law.

See here a comparison of all the different Kupat Gemel options. Take note that when it comes to actively managed funds, the past 5 years rarely looks like the next 5 years. You should not choose a fund solely based on who is “winning” today. Generally, the higher risk tracks have a higher expected return over the long term – but this is certainly not guaranteed.

How can I make changes to my children’s accounts?

To pick the investment track for your newborn child, click here (Hebrew). Please note this link will only be useful within 6 months of the birth of your child or within 180 days of Aliyah.

Making changes to an existing account is more complicated. You will need to first gain online access to the specific financial institution where the account is being held. You should receive annual reports every February or March with more specific information about each account. As mentioned above, you can get the basic information about your child’s account at anytime via Bituach Leumi.