Israel's 'Savings for Every Child' Program: Key Decisions Impacting Future Wealth

Israel's "Savings for Every Child" program, launched in January 2017, aims to provide young Israelis with a financial head start upon reaching adulthood. The National Insurance Institute (Bituah Leumi) automatically deposits a monthly sum for every child eligible for child benefits, up to age 18. Parents have the option to double this deposit by contributing an additional 58 shekels from their child benefit, resulting in a total monthly saving of 116 shekels.

In addition to monthly deposits, the program offers grants at specific ages. Children born since January 2017 receive 291 shekels at age 3 and another 291 shekels at age 12 (girls) or 13 (boys). Those born before January 2017 receive a single grant of 582 shekels at age 18. Funds generally cannot be withdrawn before age 18, with exceptions. Upon reaching 18, funds can be withdrawn with parental consent or left in savings, with an additional grant of 582 shekels for those who defer withdrawal until age 21. Funds can be accessed without parental consent from age 21.

A critical decision for parents is choosing where to manage the savings: a bank or an investment fund (Kupat Gemel). Bank savings yield depends on the chosen interest rate plan, while investment funds are exposed to market performance and risk levels. Initially, the default for children under 15 was a low-risk investment fund, and for those 15 and older, a fixed-rate bank deposit. This choice for the first child often set the default for subsequent children.

Criticism arose regarding the conservative default options, as an 18-year saving period could potentially accommodate higher-risk, higher-return investments. Starting January 2025, the default for new children whose parents do not actively choose a plan will be an investment fund, even if older siblings have bank accounts. For first children, the default will be an increased-risk plan. While savings in a bank cannot be transferred to an investment fund, new deposits can be directed to an investment fund from January 2025, leaving existing bank savings untouched.

The impact of parental choices on the final sum is substantial. For instance, a child saving only 58 shekels monthly for 18 years could accumulate approximately 19,000 shekels with a 4.5% annual return, or around 30,000 shekels with a 9% return. Doubling the monthly deposit to 116 shekels could result in approximately 38,000 shekels at 4.5% or 60,000 shekels at 9%. The difference between these scenarios, particularly with doubled deposits and higher returns, can reach tens of thousands of shekels. These figures are theoretical, as 9% returns are not guaranteed and market investments carry risk, while bank interest rates are fixed but subject to inflation.