Israeli Banks Slow to Pass Interest Rate Cuts to Depositors Despite Rate Drop

During the Bank of Israel's interest rate hike cycle from April 2022 to May 2023, when rates rose from 0.1% to 4.75%, Israeli banks quickly increased loan and mortgage rates. However, deposit interest rates lagged behind, contributing to record bank profits of about 32 billion shekels in 2023. Now that the Bank of Israel has begun lowering rates, data from July shows banks are cautious in reducing deposit rates, with some cuts more pronounced in variable-rate deposits but overall modest declines.

Among banks, One Zero offered the highest fixed one-year deposit rate at 6% for new customers, followed by Bank of Jerusalem at 3.88%, and Bank Leumi at 3.74%. Bank Massad offered the lowest at 2.9%. For fixed one-month deposits, Bank Jerusalem led with 3.07%, while Bank Yahav and Bank Hapoalim offered the lowest rates. On the credit side, credit card companies sharply reduced rates, influencing the average, but smaller banks like One Zero and Bank Massad still offered the most attractive loan rates, while Cal and Bank Jerusalem charged the highest.

The average interest on credit depends on borrower risk profiles, and deposit rates reflect banks’ liquidity needs. Payment app Bit, owned by Bank Hapoalim, recently cut its fixed three-month deposit rate from 4% to 3.7%. Meanwhile, money market funds fully adjust yields to market rates and currently offer about 3.5% returns, higher than most bank deposits for similar terms.

Israeli households’ current account balances totaled 233 billion shekels, with banks paying an average of only 0.1% interest on these funds, meaning banks earn roughly 350 shekels per 10,000 shekels held while returning about 10 shekels to customers. Transferring funds from current accounts to deposits or money market funds remains the best way for households to improve returns. Meanwhile, Israeli overdrafts rose by half a billion shekels to 10.2 billion shekels, with One Zero charging the highest overdraft interest at 12.38% and Bank Yahav the lowest at 8.36%. Revolving credit, mainly from credit card companies, totaled 6.26 billion shekels with rates as high as 15.7% charged by Cal.