Israeli Money Market Funds Yield 3.9% Annually Amid Interest Rate Changes
Translated & summarized from Mako by baba
Israeli money market funds yielded an average of 3.9% over the last 12 months, with September returns aligning with the Bank of Israel's 3.25% interest rate. Top performers in September included IBI Cash Shekel Kosher and Yelin Lapidot Cash Kosher. Key selection criteria for these funds include management fees, which vary significantly, and tax implications compared to bank deposits. The funds offer daily liquidity and adjust yields in real-time with market interest rate changes.
The story in 5 lines · by baba
- Israeli money market funds averaged 3.9% return over the past year.
- September yields for money market funds reflected the Bank of Israel's 3.25% interest rate.
- Mor Cash Liquidity Management led annual returns with 4.03%.
- Management fees and entry rates are key factors in choosing a money market fund.
- Money market funds offer tax advantages on real gains compared to bank deposits.
Israeli money market funds saw their monthly returns align with the Bank of Israel's reduced interest rate of 3.25% in September. The average monthly yield for these funds was approximately 0.26%, translating to an annual rate of about 3.25%, mirroring the central bank's benchmark rate. Over the past 12 months, the funds delivered an average return of around 3.9%, a figure reflecting a period when interest rates were higher and thus not indicative of future performance.
Money market funds invest in short-term government bonds, bank deposits, and high-grade bonds with maturities up to 90 days. Funds are liquid daily, and their yields closely track prevailing interest rates. When rates fall, fund yields decrease within weeks, and when rates rise, the funds benefit immediately without being locked into a fixed term.
In September, fund yields were tightly clustered between 0.24% and 0.28%. Top performers included IBI Cash Shekel Kosher, Yelin Lapidot Cash Kosher, Meitav Cash Liquidity Management, Mor Cash Liquidity Management, and Meitav (00) Cash Jumbo. Over the last year, Mor Cash Liquidity Management led with a 4.03% return, followed by Meitav Cash Liquidity Management at 4.02% and Meitav Cash Shekel Kosher at 4%. Funds not investing in corporate bonds, such as Altshuler Shaham Cash without Corporates (3.67%), were at the lower end, sacrificing some yield for even lower risk.
When selecting a money market fund, key factors beyond similar asset allocation and short maturities include management fees, which range from zero to about 0.25% annually. Even small differences in fees significantly impact returns on similar yields. Some funds also charge an entry fee, or 'addition rate,' which can offset savings from low management fees for short-term holders.
A primary distinction between money market funds and bank deposits lies in taxation. Deposits are taxed at 15% on nominal gains, while money market funds are taxed at 25% but only on real gains above inflation. This tax structure can make funds more advantageous, especially during periods of higher inflation. Funds also offer greater flexibility than fixed-term deposits, as their yields adjust continuously with market rates.
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