Bank Leumi CEO Opposes Mandated Interest on All Checking Accounts

Hanan Friedman, CEO of Bank Leumi, has publicly stated his opposition to a mandate requiring banks to pay interest on all checking account balances. Friedman believes banks should have the option to offer interest on checking accounts, but not be compelled to do so for every customer and every balance. Bank Leumi, he explained, is against a uniform, fixed interest rate on all customer checking accounts.

Friedman articulated his position in response to a poll he conducted on X (formerly Twitter), where the issue of checking account interest received the most votes. He noted that Bank Leumi currently pays interest on checking account balances for eligible customers up to a certain limit, crediting the Governor of the Bank of Israel and the Supervisor of Banks for advancing this initiative.

The core of Friedman's argument distinguishes between checking accounts and deposits. He stated that money in a checking account is available to the customer on demand, allowing it to be withdrawn instantly. This immediate availability limits the bank's ability to use these funds for lending. In contrast, with a fixed-term deposit, the bank knows when the money will be available and can plan its use accordingly. "The unavailability of the money, from the public's perspective, is worth money," Friedman wrote, emphasizing that a bank's primary role is to safeguard customer funds, making risk management its top priority.

Friedman clarified that his objection is not to banks offering interest on checking accounts, but to a mandatory, sweeping requirement that applies to all customers and all balances, irrespective of varying conditions and the economic climate. He argued that banks should compete for customers through interest rates and benefits. Bank Leumi proactively contacts customers with significant checking account balances to encourage them to move funds into deposits, including those with flexible withdrawal options.

Bank Leumi was the first bank to announce interest payments on checking accounts in 2023. Initially, a 1% interest rate on balances up to NIS 10,000 was criticized as minimal. Following a call from the central bank governor, the rate was raised to 2% on balances up to NIS 25,000 for customers who transfer their salaries and hold two additional products with the bank. According to Bank of Israel data, private customers' positive checking account balances totaled a significant NIS 233 billion as of June.