Bank Switching Reforms Double in Israel, Still Lag Global Rates

A reform aimed at simplifying bank switching in Israel has more than doubled the rate of customers changing banks, according to research from the Bank of Israel's research division published in 2026. While 0.6% of customers switched banks annually before the reform, this figure rose to 1.4% afterward. Despite this increase, the rate remains significantly lower than the global average of approximately 2.3%, with most of Israel's roughly 8 million checking accounts remaining with their original banks.

In the first three years of the reform, 318,600 switching requests were submitted, and 223,200 transfers were completed. The process is governed by banking regulations, stipulating that the new bank manages the entire transfer from the old bank, with completion within seven business days. Customers can choose a later date, up to 30 business days from the request, and have a cooling-off period until the sixth business day. Neither bank can charge fees for the transfer itself or for rerouting subsequent operations.

During the switch, checking account balances, both positive and negative, are transferred first, with negative balances requiring the new bank's approval. Standing orders, direct debit authorizations, credit card authorizations (both bank and non-bank), old checkbooks, and deposited post-dated checks are also moved. Salaries, social security benefits, and tax refunds are routed to the new account via a "follow me" mechanism, even if the employer hasn't updated the account details. The rule is "all or nothing" for each category of transaction.

However, loans, credit lines, and mortgages remain with the original bank. Customers continue to pay them from the old bank or arrange a standing order from the new account, with new banks sometimes offering alternative loans to cover old ones. Closed savings accounts and time deposits remain until maturity, at which point the funds are transferred unless otherwise instructed. Safety deposit boxes, non-transferable securities, and pledged assets also stay with the old bank. Incoming foreign currency transfers require manual updates from the payer, as the "follow me" mechanism only routes shekels.

The "follow me" mechanism, initially valid for two years, was extended to three years and a proposal in summer 2026 suggested a further extension to October 2029 for those who completed their switch by September 2026. This extension is proposed due to the significant volume of operations still flowing through the system after three years. In its first three years, the mechanism routed approximately 10 million operations, including 3.8 million credits and 5.7 million debits. Individuals and small businesses are eligible for account switching, with joint accounts requiring the consent of all partners. Certain account types, such as frozen, trust, or deceased accounts, are ineligible for the automatic transfer process.

The new bank can reject a switch request in five situations: if it refuses to take on a negative balance, if the balance exceeds its limits, if less than three months have passed since the previous switch, if a closure process has already begun at the old bank, or if compliance rules are not met. Negative balances are a common reason for rejection, prompting customers to settle them before applying. The old account is automatically closed once all activity has moved, though it may remain in a limited capacity for products like mortgages or deposits, with associated management fees needing clarification beforehand. Some customers find that issues like fees or interest rates, which prompted their switch, can be resolved through a single conversation with their current bank.