Israelis Overlooking Higher Deposit Rates by Sticking to Their Banks

Many Israelis automatically deposit savings into their current bank, often accepting improved but still suboptimal interest rates, according to an analysis by Complex, a consulting firm. While consumers diligently compare prices for flights, insurance, and electronics, they often neglect to seek better rates for their savings, which can amount to tens or hundreds of thousands of shekels.

Significant interest rate disparities exist between banks for deposits, as each bank's needs for funding vary. Factors like the bank's need to raise capital for lending, the deposit duration, and the type of interest rate (fixed or variable) influence the rates offered. This means a slightly higher rate might come with a longer lock-in period or greater interest rate risk, making it not always the best option.

The primary obstacle is the public's inertia; salaries, credit cards, and standing orders are typically managed through one bank, leading to a perception that deposits must also be made there. However, Bank of Israel regulations have long allowed for deposits in banks where one does not hold a checking account, a system designed to foster competition. Since 2025, large banks are legally mandated to allow external customers to open deposits without requiring a checking account.

This 'closed system' allows funds to be transferred from a customer's existing account to a deposit at a chosen bank and then returned with interest to the original account. This separation enables consumers to optimize deposit rates independently of their primary banking relationship. For example, one bank offered a 3.25% fixed annual rate, with a promotional code boosting it over 3.5%, while other banks offered public rates between 1.5% and 2.4% for similar deposits. These differences can amount to thousands of shekels annually on substantial sums.

While digital banks like OneZero may offer high rates, such as 6%, they often require transferring the primary salary account. The analysis suggests that even rates advertised on bank websites for external customers are not drastically different from those offered through the closed system, and sometimes the closed system yields better rates. Customers can leverage offers from other banks to negotiate better rates with their current bank, as banks have an incentive to retain active customers. The authors, who have a vested interest in the NORD platform for comparing deposit offers, conclude that greater public awareness and negotiation can drive banks to offer more competitive rates.