Israeli Banks Charge Widely Different Rates on Overdrafts

Interest rates on household overdrafts in Israel vary significantly between banks, ranging from 9.1% to 18.55%, according to data from the Bank of Israel's banking supervision department. A fixed overdraft of NIS 10,000 (approximately $2,700) could cost a customer between NIS 910 and NIS 1,855 annually, depending on the bank. The average interest rate across the banking system is around 11.9%.

These rates are composed of the Bank of Israel's benchmark interest rate, currently 3.25%, plus a risk premium set by each bank. For approved overdrafts, this premium typically adds 6 to 8 percentage points, resulting in rates between 10.75% and 12.75%. Mizrahi Tefahot Bank, however, lists a maximum risk premium of 13.80 percentage points, leading to a tariff rate of 18.55% and an effective annual rate of 19.88% when accounting for quarterly interest calculations.

While a 0.25% reduction in the Bank of Israel's interest rate automatically lowers overdraft costs tied to the benchmark, the bank-specific risk premium remains fixed unless renegotiated. This means a customer with an 8 percentage point premium only sees a small annual saving of NIS 25 on a NIS 10,000 overdraft after such a rate cut.

In January 2025, household overdraft balances totaled NIS 9.9 billion, with an average system rate of 11.9% generating approximately NIS 1.2 billion annually for banks from this source alone. A 2021 reform aimed at simplifying account switching was found to have reduced overdraft margins in its first year, though its long-term impact remains unclear.

Beyond interest, banks charge an 'allocation fee' quarterly for maintaining an overdraft facility, even if unused. Exceeding the approved limit incurs a higher 'overdraft interest rate,' which can reach the maximum tariff rate. Consumer loans, with rates between 6.4% and 10.3%, are cheaper than the average overdraft for extended periods, while non-bank credit card financing is more expensive at around 15.6%.