Last Updated on March 5, 2024

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

You probably have heard the news by now. Inflation is high across the world and interest rates are rising, fast. While many of our financial “buckets” have hit some large bumps in the road over the last year (investments, pension, daily budget, etc.) there is one bucket that is finally being rewarded again – the savings bucket.

For many many years savers looking to keep a chunk of change safe for an emergency fund or upcoming short term goal – say 6 months to 5 years – have had very few options that would actually earn anything significant. With interest rates rising rapidly, the game has changed. It may be time to open Israel’s version of a “High Yield Savings account.” You don’t have to be earning 0% interest anymore on the extra money that has just been sitting in your checking account (עובר ושב).

Keep in mind that this article will not be highlighting investments that are likely to beat inflation. For that, you need a good long-term investment strategy for money you won’t likely need in the next 5+ years. The focus here is specifically on how to earn more from the money you need to keep relatively safe and accessible – say for an upcoming major purchase, family simcha, vacation, etc. Proper short-term management is a key element of your financial plan as it allows you to save for your needs and wants today, while ensuring you can keep your hands off your long-term investments.

Lastly, remember that very often the key to any personal finance goal is progress rather than perfection. It’s not about finding “the best option out there” as much as taking steps that will actually move you forward. When dealing with things out of our comfort zone, procrastination is usually the default, especially when life is busy! The goal of this article is to help you get started.

The easiest approach (Level 1)

Anyone with an Israeli bank account can get started quickly without too much effort. All Israeli banks offer some form of a bank deposit/savings account (פיקדונות וחסכונות). Before we jump in I want to take a minute to acknowledge your frustration in advance. Many people find the savings account system in Israel to be confusing, overwhelming, and extremely inefficient.

If you are used to a system like the US where you go to BankRate or a similar site, easily compare interest rates for savings accounts, open an account online in minutes, and keep the money there as long you want – it isn’t going to be that simple here. For better or worse (mostly worse), the system here is more complex and will require a bit of patience.

Basic planning

An important first step is to spend a bit of time breaking down your savings (“on paper”) into short and long-term “buckets”. A simple way to look at it – you want to match your liquidity needs (how often you can take the money out) with your desired goals, for example:

• Emergency fund – daily or weekly liquidity
• Saving up for a vacation 12+ months away – monthly or annual liquidity

The very general rule of thumb is that the longer you are willing to lock your money up the more interest you will be able to earn. That said, don’t spread yourself too thin by chasing a higher interest rate and locking up your funds longer than you will ultimately be comfortable with.

Getting started

Once you have a good general sense of your “buckets” you can get started by logging onto your bank – online or via the app – and clicking on something like “הפקדה לפיקדון, “פיקדונות וחסכונות”, or “פיקדון קצר מועד (פק”מ)”. You should be able to get immediate information on the bank deposits available to you that you can get instant access to with the click of a finger. Additionally, If you are comfortable with Hebrew (or using Google translate), your bank probably has some more specific information and instructions (see here: Bank Leumi, Bank Hapoalim, Bank Mizrahi-Tefahot, Bank Discount, Bank of Jerusalem, Bank Yahav, Bank Fibi.)

For some, making the minimum deposit to a very short-term פיקדון using your existing bank account can be the best way to get started and comfortable with the process. As you click around and evaluate the different options it can be helpful to gain an understanding of the key terms.

Key terms when comparing deposits

As you narrow down your choices and pick a specific savings account, here are some key terms to know:

• תקופת הפיקדון – “The deposit period”. This can be the most important factor to consider if there are no exit points (see next term) – how long are you willing to put your money away for? You will likely see different bank deposit options with daily, weekly, monthly and annual deposit periods. In most cases, once the deposit matures (פירעון), the funds will be transferred back to your regular account (עובר ושב) automatically – whether you want it back or not.
• נקודות או תחנות יציאה – “Exit points” – The points during the deposit period that you are able withdraw your money penalty free. Not all deposits (especially very short-term ones) have exit points.
• פיקדון בריבית קבועה – “Fixed-rate deposit”. With this type, interest rates are set for the entire duration of the deposit. Once you make your deposit, the interest you earn will not change.
• (פריים) פיקדון בריבית משתנה – “Variable-rate deposit”. With this type, the interest rate you earn will change based on the “Prime rate“. In a nutshell, the prime rate is the basic interest rate banks agree on as a basis for lending money. It is most heavily influenced by changes in interest rates set by Israel’s central bank – The Bank of Israel. The interest you earn will change based on changes to the prime rate.
• אחוז ריבית – The annual interest rate. Use a handy calculator like this one to calculate how much you will earn from a fixed-rate deposit or estimate for a variable-rate deposit. This calculator won’t account for the taxes that will automatically be withheld from your interest income (15% tax rate on the nominal gains for deposits not linked to CPI).
• צמוד מדד – Generally refers to deposits that are linked to the CPI (one of the key economic measure of inflation) or a specific exchange rate. This type of deposit will rise or fall based on inflation or a currency pair. Unlike most of the other deposits in which your principal is guaranteed, with these deposits your your principal can go down if inflation (or the specific exchange rate it is tracking) were to fall.

For many who are not looking to put much more effort in to their short-term savings strategy – you can skip the rest of this article. You should have plenty of options to start earning more on your short-term savings today. It’s worth repeating that getting started and getting organized are often more important goals then finding the best option with the highest interest rate.

Taking it up a notch (Level 2)

What are your options if your not satisfied with what your bank is offering online? If you are looking to put significant money away, especially if it’s for a year or more, it may worth broadening your options beyond what your bank is offering online. The first step is to get a better understanding of the marketplace.

Market research

The Bank of Israel has put out a decent new tool to help consumers better understand and compare the average interest rates being offered by the different banks. This doesn’t include every option available and is only updated once a month but it can serve as a helpful barometer.

Use the Bank of Israel’s tool to compare all the different banks and see how your bank stacks up. By clicking around on the site (see screenshot below) you can compare different types of deposits and different time periods. (If you are an American Citizen – banking at One Zero is not yet an option – so you should ignore that one for now.)

Negotiation

Once you are armed with the facts about the average interest rates being offered in the marketplace along with specific details about what your bank is offering online you are ready for Israel’s national pastime – negotiating. Like everything else in Israel, interest rates for bank deposits are certainly negotiable. Schedule a phone or in-person meeting with a banker at your branch and see if they can offer you something better .

Higher interest without switching banks

For those not satisfied with what their bank is offering, Bank of Jerusalem is unique in that they allow you to open a “פיקדון דיגיטלי” (digital savings account) and make a direct deposit without needing to already be a customer of the bank, open a new checking account (עו”ש) , or paying any additional fees. They also offer some of the more attractive interest rates and display them transparently on their site.

Unfortunately, if you are an American citizen, you will have to go into one of their branches in order to open one of these savings account. If you do, it is all a good opportunity to negotiate for better rates then they are offering online.

Switching banks

The last option to consider is opening a new account at a bank that is offering better rates on the types of savings deposits you are interested in. Given the fees, time, and paperwork involved it may not be the best idea to switch banks just because you are not happy with the interest rates they are offering. That said, if you are already unhappy with your bank for other reasons and looking to make the switch, in some cases, this may be another good reason to consider moving on.

More advanced choices (Level 3)

While this is the ” more advanced” section because many are not familiar with these options, none of them are to difficult to access. All of these can be purchased directly in your Israeli bank account. Stay tuned for an upcoming crash course that will walk you through the steps of accessing these options.

קרנות כספיות

These are essentially money market mutual funds – funds that purchase short-term, low risk assets (such as the ones described below) on behalf of shareholders. By buying shares in these funds the idea is that you can benefit from higher interest rates than a bank deposit while also being able to maintain daily liquidity.

Another major advantage of these funds, especially during high inflation times, is that their taxation is generally based on real rather than nominal gains. Therefore, there is potential to avoid tax on gains during times where inflation is high, which would not be the case for a regular bank deposit.

If you are an American taxpayer, you will want to skip these – they are PFICs – and the low expected return is very unlikely to be worth it for the additional accounting costs & taxes you will incur for reporting these.

You can purchase these funds without commissions or maintenance fees in your Israeli bank account. See our video guide below. Please note that the specific funds discussed in the video were the cheapest funds in 2023. To find the current funds with the lowest fees, please refer to funder.co.il/kaspit as explained in the video.

מלווה קצר מועד (מק”מ)

Similar to T-Bills in the US, these are very short-term (1 year or less) government debt obligations issued by the Bank of Israel. These are generally very liquid, low-risk securities and can be purchased via your Israeli bank or brokerage account.

For Americans, purchasing these bonds would not be a PFIC problem. However, gaining access to these via a mutual fund such as a keren kaspit would be a PFIC.

אג”ח ממשלתיות לטווח קצר

These are short-term government bonds (maturity between 1-5 years). Similar to bank deposits, there are generally three types of government bonds: fixed-rate, variable-rate and inflation linked. Before purchasing any bonds, make sure you understand how changes in interest rates can affect the value of such a bond – especially if you may sell them prior to maturity.

As previously, purchasing individual bonds directly would not be a PFIC problem for American citizens, but gaining access to them via a mutual fund would be a PFIC. There are no US based ETFs or mutual funds that hold Israeli shekel bonds.

For a more in-depth comparison of all the short term savings options (in Hebrew) see this chart and article.

Pre-Aliyah

If you haven’t made Aliyah yet and don’t have an Israeli bank account, your options will be much more limited. Keep in mind that for many looking to make Aliyah in the near future, the most important short-term savings goal is to reduce exchange rate risk and start saving in shekels – not earn higher interest. If you are saving in USD or any other currency, the interest you earn can easily be wiped out by changes in the exchange rate.

We outlined in previous articles how you can use accounts like Revolut or Interactive Brokers to cheaply convert your currency and start saving in shekels without an Israeli bank account. For those looking for more advanced short-term savings vehicles – Interactive Brokers offers access to the Tel Aviv stock exchange as long as you are not yet an Israeli resident – where you can purchase Israeli traded bonds (and stocks) directly.