Jerusalem Bank Launches Novel Deposit Tied to Construction Costs Index

Jerusalem Bank has introduced a new one-year deposit account, "Construction Costs," designed to hedge against fluctuations in the construction input index. This unique product, believed to be the only one of its kind for private customers in Israel, aims to protect individuals who have purchased new apartments and are holding funds for future payments to developers.

The construction input index, published monthly by the Central Bureau of Statistics, tracks changes in the cost of residential construction, including materials, labor, equipment, and contractor services. Payments in new apartment purchase contracts are typically linked to this index, exposing buyers to its movements from signing until key handover. Previously, funds set aside for these payments were often held in regular checking or shekel-denominated accounts, while the debt to the developer adjusted with the index, creating a potential mismatch.

This new deposit mechanism bridges that gap by linking the principal amount directly to the construction input index, with full linkage in both directions. This means the deposited sum will increase or decrease in line with the index. Upon withdrawal, after a 35-day notice period, customers receive their principal plus accumulated linkage differences based on the latest published index data. The 35-day notice allows for timing withdrawals to coincide with upcoming contractor payments.

While the deposit offers full linkage, it also means the principal can decrease if the index falls. A 15% tax will be deducted at source from any profits, including the linkage component, for Israeli resident individuals. Specific details on the minimum deposit amount and any interest beyond the index linkage are yet to be released by the bank. The bank positions this product as a hedging tool, particularly beneficial when the construction input index rises more than the interest rate on a standard shekel deposit.

For context, the construction input index rose by 5.1% in 2025 and an additional 2.3% from January to July 2026, compared to overall inflation rates of 2.6% and 1.4% respectively for those periods. A hypothetical example illustrates this: on a 3 million shekel apartment with 40% of the price linked to the index, a cumulative increase of about 7.4% over 18 months would add approximately 89,000 shekels to the debt owed to the contractor. A standard shekel deposit earning around 4% interest on the same 1.2 million shekel portion would yield about 72,000 shekels over the same period.