Israel's 'Savings for Every Child' Program: Key Decisions at Age 18
Upon reaching their 18th birthday, young Israelis face a significant financial decision regarding the "Savings for Every Child" program, managed by the National Insurance Institute. This program, active since January 2017, has accumulated funds in a savings account or investment provident fund under each child's name. While parents managed the accounts until now, the decision-making power transfers to the individual as they enter adulthood.
The National Insurance Institute deposits a monthly sum for every child resident in Israel until age 18. Initially NIS 51, this amount is set to reach NIS 58 by 2026, deposited on the 20th of each month alongside child allowances. Parents had the option to match this contribution, doubling the monthly deposit to NIS 116. Children born before 2017 also received a retroactive deposit of NIS 50 per month from May 2015, totaling up to NIS 1,000. Consequently, an 18-year-old today typically has around NIS 7,000 from state funds, with potentially double that amount if parents maximized contributions. After accounting for investment returns, a doubled account could reach approximately NIS 20,000 or more.
Additional government grants are provided: NIS 582 upon turning 18, with another NIS 582 if the funds remain untouched until age 21 for those born before December 31, 2016. Those born in 2017 or later receive earlier, smaller grants (NIS 291 at age 3 and NIS 291 at age 12/13 for girls/boys), with the NIS 582 grant at age 21 available to both groups under the same conditions. Notably, the National Insurance Institute covers management fees and commissions until age 21, after which these costs are deducted from the savings.
The funds can be managed in two ways: as a bank deposit with fixed or variable interest, not exposed to the stock market, or as an investment in a provident fund, allowing for choices between low, medium, or high-risk investment tracks, including options aligned with religious principles. If parents did not make an explicit choice, the default setting is an investment provident fund, which may not have been reviewed for suitability. Since January 2025, it's possible to transfer ongoing savings from bank accounts to investment provident funds, a change mainly relevant for younger siblings.
Investment track performance varies significantly. Over the initial years, high-risk tracks yielded an average annual return of about 6.7%, medium-risk around 3.9%, and low-risk around 2.1%. Bank deposits offer only interest without market exposure. This difference can amount to tens of thousands of shekels over 18 years. Taxes on withdrawals apply only to accumulated profits: 25% of real profit (after inflation) for provident funds and index-linked bank accounts, and 15% of nominal profit for non-linked shekel deposits. Withdrawals before retirement age from provident funds are taxed on profits, though withdrawing as a monthly pension at retirement age is tax-exempt on profits.
Withdrawals are permitted from age 18, but parental consent is required until age 21. After 21, the funds are fully accessible without needing approval. Applications are made directly to the managing institution, not the National Insurance Institute. Withdrawing funds is advisable if the money can generate a higher return elsewhere, such as paying off high-interest debt or funding education that increases earning potential. Spending the money on non-essential items forfeits the age 21 grant, three years of potential returns, and the state-subsidized management fees. If choosing to withdraw, it's crucial to understand the tax implications before signing. Leaving the money in the savings account until age 21 incurs no personal cost and allows it to continue growing, especially beneficial for those entering military service, which often coincides with this period and may reduce immediate income.
