Israeli Banks Offer Minimal Interest on Savings Accounts Despite Promises
Translated & summarized from Maariv by baba
Israeli banks are providing minimal interest on positive current account balances despite advertised rates, according to recent data. While banks like Leumi and Mizrahi Tefahot offer rates up to 3% on eligible funds, strict conditions mean only a small fraction of balances actually earn interest, resulting in effective rates often near zero. In contrast, interest rates on overdrafts remain high, averaging over 11%. The findings suggest a need for greater competition to improve returns for customers on their savings.
The story in 6 lines · by baba
- Israeli banks offer minimal interest on positive current account balances due to strict eligibility conditions.
- Leumi Bank CEO Hanan Friedman acknowledged interest payments, but data shows negligible returns for most customers.
- Only a small percentage of positive balances, often below 11%, are eligible for advertised interest rates.
- Average interest rates on positive balances across major banks are effectively near zero, while overdraft rates exceed 11%.
- The total sum held in positive current accounts in Israel exceeds NIS 236 billion.
- Analysts call for increased banking competition to improve customer returns on savings.
Despite promises from bank executives, including Leumi Bank CEO Hanan Friedman, that interest is paid on positive current account balances, data reveals that the actual amounts received by customers are negligible. Friedman stated that Leumi pays interest on funds in current accounts for customers meeting benefit conditions up to a set ceiling, with interest automatically credited. However, this claim is qualified by significant conditions, often referred to as a "giant asterisk."
Data from Bank of Israel shows that in August, household current accounts held NIS 236 billion in positive balances. Even a minimal 1% annual interest rate on this sum would amount to over NIS 2 billion for the public. While some banks advertise interest rates of 2-3% on positive balances, the actual return to the public is far lower due to strict eligibility criteria.
For example, Mizrahi Tefahot Bank offered 3% interest on the portion of the balance eligible for interest, but when calculated on all positive current account balances, the effective rate dropped to 0.3%. This is because only 10.78% of positive balances were actually earning interest. Discount Bank paid 2.1% on eligible portions, but this applied to only 11.44% of balances, resulting in an average rate of 0.2% on all positive funds. At Bank Leumi, the eligible interest rate was 1.1% on just 3.12% of balances, leading to an average rate rounded to 0.0% on all funds.
Similarly, other major banks like Hapoalim, Yahav, Mercantil, and Massad also showed average interest rates rounded to 0.0% on all positive balances, despite offering higher rates on eligible portions. This disparity highlights that while banks may offer attractive rates on a small fraction of funds, the vast majority of money in current accounts earns little to no interest. Meanwhile, the average interest rate on negative balances (overdrafts) among the five largest banks ranged from 10.72% to 13.01% in August, with Leumi charging 13.01%.
These figures underscore the need for increased competition in the banking sector to ensure that customer benefits are reflected in both lower overdraft rates and higher returns on positive balances. While the individual gains from higher interest on savings might be small, the aggregate amount for the public on NIS 236 billion in positive balances is substantial, with a 1% rate equating to NIS 2.36 billion annually.
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