Credit Card Interest Rates Soar to 15% Amidst Falling Bank of Israel Rates
Despite a recent decrease in the Bank of Israel's interest rate to 3.25% and a prime rate of 4.75%, credit card companies in Israel are charging significantly higher interest on their credit facilities. As of September 3, 2026, standard credit card interest rates range from 14.15% to 14.50% annually, with adjusted rates reaching up to 15.50%. This creates a nearly ten-percentage-point gap between the prime rate and credit card interest, turning a potentially free payment method into an expensive loan depending on the chosen credit track.
There are three main credit tracks: a regular monthly charge with zero interest between purchase and billing date, suitable for those who can pay in full; installment plans offered by the merchant with zero interest; and a 'credit' or 'renewing charge' option where a fixed monthly amount is paid and the remainder rolls over, incurring interest rates from 14.15% to 15.50%. This last option is effectively a costly, short-term loan.
The difference between stated and adjusted annual interest rates stems from compounding interest, where interest is calculated monthly on the outstanding balance, including previously accrued interest. The Fair Credit Law mandates disclosure of this compounding interest mechanism. In standard installment plans, the merchant covers the credit company's cost for the deferred payment, meaning the price at the point of sale may already reflect this.
However, when credit card companies retroactively arrange installment plans for existing charges, or offer a 'credit' option with fixed installments, these are treated as loans and incur interest rates of 15.25% (standard) to 16.36% (adjusted). The Fair Credit Law sets a maximum interest rate cap, currently 18.25% (Bank of Israel rate plus 15 percentage points), with penalties for exceeding it. There are exceptions for very large loans or short-term institutional loans.
For example, an 8,000 shekel credit balance at a 14.15% annual rate with a 200 shekel monthly repayment would take over four years and seven months to pay off, accumulating 2,886 shekels in interest, a 36% increase. The same loan from a bank at 7.75% interest would cost 1,285 shekels in interest and be repaid in 47 months.
Additionally, credit card annual fees can be substantial, with some cards costing over 200 shekels per year if minimum spending thresholds for waivers are not met. The article also details consumer rights regarding recurring payments and unauthorized charges, emphasizing the importance of understanding these terms to avoid unnecessary costs.
