Israelis Can Earn Significantly More on Bank Deposits by Shopping Around
Israeli consumers diligently compare prices for flights, negotiate insurance rates, and seek the best deals on mobile phones, yet often accept the first interest rate offered by their primary bank for savings deposits. Even when they negotiate a slightly better rate, it may still be lower than what another bank would offer, even without opening a checking account there.
With approximately 2.44 trillion shekels, nearly two-thirds of public funds, held in checking and savings accounts, even small differences in interest rates translate into substantial sums of money left with banks. Banks offer varying interest rates on deposits because each deposit serves as a funding source, and its cost fluctuates based on the bank's specific needs, such as supporting credit growth or managing liquidity and regulatory requirements. Deposit terms also influence rates, with longer, fixed-term deposits without early withdrawal options generally commanding higher interest than those with flexibility or variable rates tied to interest rate expectations.
The primary obstacle is consumer inertia; people are accustomed to using a single bank for all their financial needs. However, a "closed system" established by the Bank of Israel over two decades ago allows individuals to deposit funds in a bank where they do not hold a checking account. This system, intended to boost competition, will become mandatory for large banks in 2025, requiring them to accept deposits from customers of other banks without necessitating a new checking account. The process involves funds being transferred from the existing account to the chosen deposit bank and then returned with interest to the original account.
Recent checks reveal significant disparities in deposit rates. For instance, one bank offered a 3.25% annual fixed rate on a deposit, potentially rising above 3.5% with a promotional code, while other banks offered public rates for external customers between 1.5% and 2.4%. This difference can amount to over 2,000 shekels annually on a 100,000 shekel deposit, and over 10,000 shekels on a 500,000 shekel deposit before taxes. While one digital bank offers a high 6% rate, it requires transferring the primary salary account. Even after negotiating with one's own bank, rates may still be significantly lower than what is achievable elsewhere, with some platforms indicating potential negotiation gaps exceeding 1%.
Ultimately, consumers should not accept their bank's initial deposit offer as final. By comparing rates from different banks, especially through the closed system, and by effectively negotiating, individuals can secure higher returns. Increased consumer engagement in seeking better deposit rates will compel banks to compete more fiercely, leading to improved interest rates for the public.
