Israeli Savings Accounts Yield Low Returns, Prompting Calls for Better Options
Translated & summarized from Bizportal by baba
Many Israelis are keeping savings in accessible accounts that yield very low interest rates, with daily deposits earning an average of just 0.67% annually as of September. This accessibility comes at a significant cost, with potential earnings lost compared to higher-yield options. While longer-term deposits offer better rates, significant differences exist between banks, and consumers are advised to regularly review their savings strategies to maximize returns.
The story in 6 lines · by baba
- Israeli daily savings accounts offered an average annual interest rate of only 0.67% in September.
- A 100,000 shekel deposit in a daily account earned approximately 56 shekels per month before taxes.
- Over 42% of household deposits were in accounts with terms of one month or less.
- Interest rates on short-term deposits fell from 1.56% in August to 1.36% in September.
- Fixed deposits of six months to a year averaged 3.54%, with some banks offering up to 6%.
- Significant interest rate disparities exist between different banks for similar deposit terms.
Many Israelis are opting to keep funds in readily accessible savings accounts, but the interest earned is minimal. In September, the average annual interest rate on daily deposits was approximately 0.67%. For a 100,000 shekel deposit, this amounts to about 670 shekels per year, or roughly 56 shekels per month before taxes, assuming constant principal and interest rates. This accessibility is understandable, as funds may be earmarked for major purchases like a home, significant family expenses, or periods of unstable income.
The issue arises when these short-term solutions become long-term arrangements without regular review of their earnings potential and available alternatives at similar liquidity levels. Data from the Bank of Israel for September revealed that household deposits in non-indexed shekel accounts totaled approximately 32.7 billion shekels. A significant portion, about 14 billion shekels (42.7%), was held in accounts with terms of up to one month, including daily and weekly deposits. The weighted average annual interest rate for this category was around 1.36%.
Compared to August, both the total amount deposited in short-term accounts and their relative share decreased. The average weighted interest rate for accounts up to one month fell from approximately 1.56% in August to 1.36% in September. Daily deposits saw an even sharper decline, with the average rate dropping from about 0.92% to 0.67%, and deposit volumes decreasing from 8.1 billion to 6.3 billion shekels.
Financial analysts highlight that the low returns on accessible funds create a significant opportunity cost. For instance, a daily deposit yielding 0.67% contrasts sharply with a liquid alternative offering 3% annually, resulting in a potential annual difference of 2,330 shekels on a 100,000 shekel deposit before taxes. Even over three months, this difference can amount to hundreds of shekels, underscoring the importance of periodically reassessing savings strategies.
For those willing to commit funds for longer periods, such as six months to a year, higher interest rates were available. In September, approximately 8.6 billion shekels were deposited in fixed-term accounts within this range, with an average interest rate of 3.54%. However, significant variations exist between banks, with some offering considerably higher rates than others. For example, one bank offered 6.00% on fixed deposits of six months to a year, while others offered rates closer to the system average. These figures represent averages for deposits received during the month and do not guarantee specific rates for all customers.
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