Digital Bank Esh Offers Interest Rates 26 Times Higher Than Traditional Israeli Banks

The new digital bank Esh currently offers an interest rate on current accounts that is 26 times higher than the traditional banking system average, which stood at just 0.1% as of April before the recent rate cuts. Mizrahi Tefahot leads among traditional banks with the highest current account interest at 0.4%, still less than one-sixth of Esh's rate. In contrast, digital competitor One Zero pays no interest on current accounts but offers 1.25% on daily deposits.

Esh differentiates itself by sharing 50% of its income from customers' current account funds back with them, a model it calls "Equal Sharing" (Esh). This approach aims to resolve the inherent conflict of interest where banks seek to minimize interest paid to customers. Interest is paid weekly and is not dependent on deposit size or conditions. As of April, Israeli households held approximately 237 billion shekels in current accounts, mostly concentrated among a small number of clients. Traditional banks generate nearly 10 billion shekels annually from these funds but return only 237 million shekels to customers.

For term deposits, Esh increases the revenue share with customers based on deposit duration: 60% for three-month deposits, yielding about 3.3% interest, compared to 3% at One Zero and 2.6% at Bank of Jerusalem. The five largest banks offer between 1% and 1.5%. For one-year deposits, Esh shares about 80% of income, offering a competitive 4.5% interest, versus 3.75% at One Zero and Bank of Jerusalem, and 2.25% to 3% at major banks.

While interest rates are expected to decline by the time Esh fully opens to the public, the revenue-sharing model will remain intact. A key unresolved issue is the timing of Esh's acquisition by Isracard. Negotiations are progressing, with Isracard extending the non-binding memorandum of understanding and exclusivity period with Esh until July 17, as reported in mid-June.