Last Updated on December 21, 2023

We have been getting a lot of questions lately around financial safety. Is my money safe in Israel? Where is the best place to keep my savings – in Israel or elsewhere? If I am making Aliyah, should my money be making Aliyah with me or stay right where it is?

It is important to point out that making big financial decisions simply based on what is going on in the news today is rarely an advisable strategy. Your financial plan should be built for the long term irrespective of what is going on currently or where things may be headed in the future. Taking a well thought out and diversified approach to your finances makes sense regardless of what is happening with the economy today.

The fact is that with a growing number of global fintech companies and investment platforms available to Israelis, we have more choices than ever before. With The Bank of Israel’s recent major announcement taking a big step towards opening up the Israeli banking system to many more foreign financial services, our options are likely to grow further. This article will focus on some of the important factors for you to consider when deciding where to keep specific savings & investments.

Reasons to keep money in Israel

You may not love the banks, credit card rewards, investment options, customer service, or current government’s policies – but it still makes a lot of sense to keep some savings here. To get things started, let’s breakdown the good reasons why.

Access

Let’s face it, it isn’t always easy to get money to Israel. Foreign credit cards don’t work for every purchase. If you need to get money here quickly for whatever reason, you can’t always rely on your Israeli bank to be accomodating. In other words, one of the best reasons to keep money in Israel for things like daily spending, emergency savings, or a big purchase, is to avoid delays when you need the money fast or the right opportunity presents itself.

Currency risk & interest

By holding assets in shekels, you can significantly reduce the need to worry about what is happening with the exchange rate today. Tuning out the ups and downs of the currency markets can both reduce your risk and increase your peace of mind. This is especially relevant for:

• Your daily spending
• Saving up for a short-term goal in Israel such as a car or down-payment
• Those nearing retirement in Israel looking to regularly withdraw from savings

While you can hold shekels on some non-Israeli platforms, you are unlikely to be able to earn any interest on them outside of Israel. With short-term interest rates rising significantly, this can be an important factor to consider. For non-Americans who can purchase things like Israeli government bond funds and קרנות כספיות without having to worry about adverse US tax consequences – Israeli platforms can provide more attractive opportunities to save and invest.

Matching the currency you hold with the currency you will be spending in is an important step towards reducing exchange rate risk. See our full guide on this “How to manage your exchange rate risk“.

Tax reporting

If you are salaried employee for an Israeli company and keep all your savings & investments in Israel – you likely can avoid having to file an annual Israeli tax return. When using an Israeli platform, tax will automatically be deducted from any income you earn and doesn’t need to be reported again in an annual report.

This advantage is easily negated if you maintain any savings or investments outside of Israel. If you earn even $1 of taxable income in an account outside of Israel and you are not within 10 years of Aliyah, you will need to report it in Israel.

Reasons to keep money out of Israel

Now let’s unpack some of the good reasons why all your money should not make Aliyah with you and all income that your earn here does not need to stay here. Whether you are just getting started on your Aliyah journey or you have been living in Israel for many years – there are good options for maintaining savings and investments outside of Israel – and some good reason to do so.

Ikul (עיקול)

Most Olim are shocked to learn how easy it is for a government institution or other creditor to put a bank restraining order on your Israeli bank account. Essentially, should any bureaucrat at a municipality, the Israeli Tax Authority, bituach leumi, etc. determine that you have failed to pay your debts after repeated warnings – they can put a freeze on your account for the amount you owe without any due process. Your bank will be legally obligated to comply.

While certainly very rare, it is not unheard of for someone’s bank account to be frozen due to clerical error or a mistaken ID number. Because of this crazy and unfortunate system, many appreciate the value of maintaining liquidity through accounts and credit cards outside Israel and beyond the reach of the governments collection agency (Hotzaa L’Poal, הוצל”פ).

FDIC+

Outside of Israel, there are often very robust government backed guarantees on bank deposits such as FDIC in the US or FSCS in the UK. No such guarantee exists with money held in an Israeli bank. Understandably, especially in times like this, direct guarantees on some of your savings can bring a lot more piece of mind.

This is not to say that money sitting in an Israeli bank is not relatively safe. There is a very strong expectation and precedent to believe that government intervention to protect consumers is inevitable should any bank or other major financial institution here face a crisis. In addition, Israeli banks have very strict regulations and capital requirements making a bank failure less likely. Because there are so few banks here, a single failure could have a devastating impact on the economy and it’s reasonable to assume that all Israeli banks are “too big to fail.“

10 year tax holiday

New Olim are entitled to an exemption for ten years on reporting and paying taxes on all non-Israeli sourced income. Given the high Israeli tax rates, this can often serve as a significant additional incentive for new olim to maintain their investments outside of Israel. New Olim who are just getting started investing are also often best served by doing so via non-Israeli assets in order to take advantage of this tax break. This benefit is very often misunderstood – see our full article on the Aliyah tax holiday to learn more.

Retirement accounts

It is almost never a good idea to prematurely withdraw money from a tax-advantage retirement account. Any advisor that is pressuring you to withdraw money from a retirement account and move it to an investment in Israel should be handled with extreme skepticism. Tax-free or tax-deferred growth are not benefits you want to be sacrificing readily and it is rare that you can put money back in after you take it out.

Investment opportunities outside of Israel

This is often one of the most important factors for Americans living in Israel to consider. While non-Americans can build a globally diversified portfolio using ETFs and mutual funds that trade in shekels on the TASE, Americans have a much harder time. Americans who want to build a passive low-cost, globally-diversified portfolio while avoiding PFICs will need to do so via the US markets. While the US markets can be accessed using an Israeli bank or investment account, it’s often far more cost-effective to do so via a US brokerage.

Those considering moving over investments specifically to Israeli stocks should dive deeper to understand if that really meets their investment goals. See our full guide on this, “The truth about the Israeli stock market“

Better banking

I speak to many different olim and I have yet to meet one that really loves their Israeli bank. Banks here deservedly have a bad rep on customer service, ease of use, and fees. Israeli credit cards don’t provide nearly as much rewards and benefits as you can find with cards outside of Israel. Beyond the FDIC factor mentioned above, many Olim choose to maintain banking and brokerage relationships simply because the customer experience can be so much better.

Bottom line

There are some very good reasons for Olim to maintain or build savings and investments outside of Israel. There is also a lot of value to keeping some of your savings in Israel. A well thought out financial plan should consider the factors carefully and help you position your assets in the best way possible for you.

Always be wary of an advisor who is pushing you to quickly move your assets from one country to another. This is especially true if that advisor has specific conflicts of interests based on the services they offer or earn commision from. Try and weigh the pros and cons of the specifics of your situation rather than focusing on any doomsday scenarios being predicted in the news.