Israelis Move Billions From Banks to Stock Market Amid Falling Interest Rates

Israeli citizens are increasingly withdrawing funds from bank deposits to seek higher returns in the capital markets, a trend accelerated by multiple interest rate cuts by the Bank of Israel. In the year ending July, household deposits in the banking system decreased by 10 billion shekels to 728.5 billion shekels, marking a reversal from a long-term growth trend where total deposits nearly doubled from 2017 to early 2023. This shift is driven by the public's search for more attractive investment alternatives as bank interest rates decline.

Data analyzed by Meitav Investment House reveals a significant surge in investments in traditional active mutual funds, which often include stocks and bonds. These funds saw deposits jump by 68% to 34.5 billion shekels in the year ending July, compared to 20.5 billion shekels in the previous year. While money market funds, seen as a bank deposit alternative offering better interest and liquidity, also attracted significant investment, their deposits saw an 11% decrease to 30.1 billion shekels in the same period.

Conversely, passive mutual funds experienced a dramatic decline, with deposits plummeting by 92% from 27 billion shekels in the year ending July 2025 to just 2.1 billion shekels in the year ending June. This suggests a preference for active fund managers who are navigating a rising stock market. Overall, the mutual fund industry managed 834 billion shekels as of early September, growing by 126 billion shekels in the past year due to both returns and substantial public inflows.

Financial experts note that the public is tired of low bank interest rates and is actively seeking higher yields. This increased risk appetite is leading individuals to move money from traditional deposits into various capital market instruments, including direct stock trading, investment provident funds, and savings policies. Banks, while experiencing a natural outflow from deposits, have benefited from increased commission revenue stemming from heightened activity in the stock market, with total commissions rising by 3% in the second quarter.