Child Savings Plan Shows Vastly Higher Returns in Investment Funds Than Banks
A new simulation by financial services firm PwC reveals that the "Savings for Every Child" program can yield up to 50,000 shekels more when managed in provident funds compared to bank deposits. This highlights a significant disparity in the starting financial position for young Israelis entering adulthood, stemming from the Finance Ministry's decision to allow banks to participate in the program.
The "Savings for Every Child" program, active since 2017, provides a monthly contribution from the National Insurance Institute to a dedicated savings account for every child under 18, with parents able to match the contribution. While the intended savings period spans at least two decades, funds can be placed in either investment provident funds managed by insurance companies and investment houses, or in specialized bank deposits.
Provident funds offer three risk-based investment tracks (high, medium, low), while bank deposits provide options with fixed or inflation-linked interest rates, and varying withdrawal flexibility. PwC's analysis, covering the first nine years of the program (until March 2026) for accounts with doubled parental contributions, shows stark differences. Children in high-risk provident funds accumulated approximately 8,800 shekels in profits, while medium-risk funds yielded about 4,900 shekels. In contrast, the best-performing bank deposit generated only around 2,000 shekels in profit, with the lowest yielding a mere 500 shekels.
Projecting these trends until age 18, the simulation suggests a high-risk provident fund could result in nearly 56,000 shekels in profit (before tax), totaling around 81,600 shekels. Bank deposits, however, are projected to yield between 3,800 and 10,100 shekels in profit, resulting in a total savings of 29,000 to 35,000 shekels. Even when extending the simulation to age 21, the gap widens significantly, with provident funds potentially reaching 114,000 shekels compared to 30,000-40,000 shekels in banks, due to the power of compound interest.
While acknowledging that future returns are not guaranteed and tax implications (25% on provident funds vs. 15% on non-linked bank deposits) will reduce the absolute difference, the long-term analysis indicates banks struggle to offer competitive returns over two decades. The trend is shifting, with a law change in early 2025 allowing transfers of future deposits from banks to provident funds. Last year, approximately 98,000 savings accounts were moved, reducing the bank-managed share to about 16%. The report notes that lower socioeconomic families disproportionately choose bank deposits, potentially costing their children tens of thousands of shekels.
Nimrod Sapir, CEO of the Association of Investment Houses, emphasized the simulation's clarity on the vast gap between provident funds and bank deposits, urging the government to consider expanding the program and providing solutions for disadvantaged families. He also called for allowing the transfer of existing bank deposits to provident funds. The Finance Ministry stated that the program was designed to offer various savings options and that past yield differences do not invalidate the choice of bank accounts, asserting they monitor the program for necessary adjustments.
