Finance

While the topic of finances might not initially seem exciting, effective money management is a crucial and inescapable part of life. With this in mind, we aim to bring both enthusiasm and practicality to the subject, making it more engaging and accessible.

Photo by Din Ahahroni Rolland

The truth is, while navigating Israel’s financial landscape independently comes with its challenges, it also offers many opportunities for Olim Chadashim. Until the 7th of October war, Israel’s credit rating had consistently risen, reflecting the country’s economic stability and growth in more typical times.

Admittedly, many Olim may initially feel overwhelmed by the protocols and bureaucracy of Israel’s banking policies, as well as the policies of other institutions. However, you can take comfort in knowing that you’re becoming part of a robust and stable banking system.

Israel's Banking Policy of Privacy

Banking practices in Israel differ significantly from those in many Western countries, particularly in their focus on transaction monitoring. Unlike the emphasis on banking secrecy and privacy found in other Western nations, Israeli banks adopt a vigilant approach. For example, Israeli banks often require your social security number, especially if you’re a U.S. citizen. This may seem like extra scrutiny at first, but it’s actually a step towards ensuring enhanced due diligence in banking procedures.

The heightened vigilance in Israeli banking practices is rooted in security concerns, given the persistent threat of terrorism in the region. Israel takes proactive measures to prevent the funding of potentially harmful activities. As a result, larger transactions may attract inquiries about their purpose. While asserting privacy rights may be tempting, cooperating is crucial, as resistance could lead to transaction declines or funds returned to their original account.

Additionally, U.S. regulations have prompted Israeli banks to maintain records of bank accounts held by U.S. citizens. They often require American citizens to complete various tax and IRS forms that disclose their social security or tax ID numbers. However, if you’re a U.S. citizen born in a country other than the U.S., the bank might not enforce such demands due to information gaps.

The complexity escalates with regulations like FBAR and 5471 reporting requirements. U.S. citizens who maintain foreign bank accounts or possess interests in foreign corporations must file these reports with the IRS/Treasury Department or face a potential $10,000 penalty as of today.

Seeking guidance from an accountant or lawyer well-versed in American tax regulations is strongly recommended, as compliance involves navigating various thresholds and nuances in these obligations.

Managing and Opening a Bank Account

Similar to banks worldwide, the account-opening process typically entails signing numerous documents, which you probably aren’t going to take the time to read through. An intriguing aspect worth noting is that opening a bank account in Israel is possible even if you’re not a resident. Many Israeli banks offer “non-resident accounts” for individuals living abroad, contingent on specific criteria such as the annual number of days spent in Israel. However, this process may involve additional steps. If you intend to make Aliyah, it is recommended to wait and open an account once you become an Israeli citizen.

How does the process work, and how long does it take?

Upon choosing your preferred bank, a personal visit to the bank is typically necessary. For the most part, as a foreigner, a specific appointment is usually required, and it’s advisable to allocate sufficient time as paperwork and authorizations can be time-consuming. You can anticipate receiving standard account information, such as credit cards and online banking instructions.

Opening a Bank Account as a Newcomer (Oleh Chadash)

As an Oleh, it is required to gather various documents when preparing to open a new bank account. These include:

  • Your passport
  • Your resident identification card (Teudat Zehut) and your Oleh certificate (Teudat Oleh), which confirms your migrant status as an Oleh or other
  • For those from the US, your social security number will be required
  • The “Note of Future Bank Account” received at the Israeli airport upon arrival. The bank will stamp this to assist with your future registration at the Ministry of Aliyah and Integration
  • Initial funds in cash or a check to open the account
  • If opening a joint account, come with your spouse, as both parties need to be present
  • It’s highly recommended that you open your bank account and activate it with a deposit as soon as possible to receive your complete Aliyah benefits from the Ministry of Aliyah and Integration

Account Types

In Israel, banks establish distinct accounts (or subaccounts) for various currencies and purposes:

  • One account serves for day-to-day transactions like checks, transfers, bill payments, and deposits
  • Another is designated for investments (refer to “Asset Management in Israel” for details)
  • A separate account is allocated for saving deposits
  • Finally, there’s the foreign currency account

Each account is associated with its unique set of fees and management specifications. It is the client’s responsibility to ensure that the necessary funds are available in the relevant account. Banks don’t automatically transfer money between accounts to cover a pending check unless they have been required to do so or it has been prearranged.

Opening a Bank Account Online

To open an account as an Israeli resident, you’ll typically need to provide proof of residency and a physical visit to the bank is often required. However, some Israeli banks offer the convenience of opening an account virtually through their online services. Even in these cases, standard verification procedures are in place, which may include a video call with a bank representative for identity confirmation. Additionally, digital banks like One Zero operate exclusively online.

Fees

Most Banks in Israel are known for charging a small fee (Amlah) for just about every financial transaction. Prepare yourself for an array of charges, including the following:

  • Standard withdrawal fees
  • Depositing foreign currencies
  • Transfers
  • Wires
  • Maintenance
  • Extra cash withdrawals
  • Ordering checkbooks

Be aware that withdrawals tend to increase after a certain threshold is reached. However, you can smartly avoid these higher fees by withdrawing smaller amounts. A useful tip for Olim, especially Olim opening a new account, is that banks often offer fee waivers or discounts initially. But keep in mind that these fees usually rise after the introductory grace period ends.

If you have a knack for charm, you might be able to persuade your banker to reduce your fees. This approach often works better for business owners and usually requires a direct request. Building a strong rapport with your banker can prove invaluable. It helps not only to secure fee reductions but also to navigate complex financial scenarios smoothly.

Banking ID Card

Streamlining your banking needs in one simple document
A recent and highly valuable enhancement to banking services is the introduction of the “Banking ID Card.” This document, accessible through the client’s online account, provides a comprehensive overview of all account activities in a clear, concise, and easily comparable format. The Banking ID Card is distributed annually on February 28 to all clients (individuals and small businesses) via their online account on the bank’s website or by mail (based on the client’s preferred communication method with the bank). This report remains accessible on the online account for three years. Clients can also request a Banking ID Card anytime throughout the year to access up-to-date account information.

 

What details are included in the Banking ID Card?
The Banking ID Card displays:

  • Account assets, encompassing current balances, deposits, and savings
  • Liabilities, such as loans and credit facilities
  • Total fees paid by the client
  • Additional particulars, including standing bank orders and account-related powers of attorney
  • For clients seeking more in-depth account insights, a detailed report complements the summarized version

 

How does the Banking ID Card benefit the client?
The Banking ID Card enables the client to:

  • Monitor the account’s activity, allowing easier and more informed management
  • Familiarize itself with the banking products associated with the account, their costs, and the generated profits
  • Compare the current terms of the account with offerings from other banks, potentially prompting a switch to a more advantageous option
  • Trim down account management fees and expenses

Six ‘Must-Know’ Banking Tips for Israel

Here are some useful tips and shortcuts for banking in Israel that can save you time and money while avoiding unnecessary hassles:

  1. Utilize online banking – Banks in Israel frequently provide lower fees and decreased interest rates for online transactions, making them a cost-effective choice that benefits both the bank and the client. Conducting most of your banking online minimizes reliance on teller services and can save you time and money.
  2. Cultivate strong banking relationships – Establishing a strong rapport with your bank opens doors to a wider array of services, enhancing flexibility in obtaining credit. The closer your ties with the bank, the more advantageous your financial position becomes.
  3. Embrace digital payment solutions – The era of cashless transactions has blossomed thanks to technology. User-friendly apps like Bit, PayBox, and Pay provide convenient options that seamlessly sync with your smartphone, credit card, or bank account, facilitating effortless transactions. However, it is recommended to check in advance the various fees involved.
  4. Negotiate credit card fees – If you’re considering canceling your credit card due to fees, try contacting your credit card company first and explain your intention. They often offer to waive the fee, particularly if you make a point to schedule a reminder to call them again once the temporary waiver period is nearing its end.
  5. Embrace negotiation – In the local banking landscape, a key strategy to remember is that many fees, charges, and account terms are often negotiable, particularly as the size of your account grows. Showing a willingness to discuss and request discounts might just lead to an unexpectedly favorable outcome. Negotiation and bargaining are integral parts of Middle Eastern culture and extend to financial deals.
  6. Streamline transactions – To lower bank fees, consider reducing the number of transactions you make each month rather than using a credit card for recurring monthly expenses. This approach can help you avoid fees charged per check and for each transaction line.

Remember, the real trick is adapting these strategies to align with your financial landscape. Make these tips work for you by customizing them to your specific needs and circumstances.

Israel's Major Banks

The following is a list of Israel’s major banks to date:

Bank Hapoalim

Israel's largest bank, operating since 1921. Renowned for its convenience, the bank boasts an extensive network of ATMs and branches throughout the country, with competitive fees and a special discount for Olim. (Hebrew Website)

Bank Leumi

A comparable counterpart to Hapoalim in terms of its size, boasts a rich history dating back to 1902. Presently, it promotes various account options, including one tailored for employees. Leumi also extends its services to tourists through a non-resident account and provides the convenience of online account opening for its clients.

Pepper

A digital branch of Bank Leumi, established in 2017 to add a more advanced, convenient, and smart banking experience without transaction fees. This smart system utilizes a new technological system that will suggest personalized insights and updates for customized bank account management.

Mizrahi Tefahot Bank

Another notable institution in Israel known for its flexible customer service, which is accessible online and through the phone. This establishment is particularly significant as the premier mortgage provider in the country, making it a crucial resource for individuals looking to acquire property.

Discount Bank

Ranked as Israel's third-largest bank with roots dating back to 1935. Its subsidiary, Mercantile, is a significant bank in its own right, catering to diverse segments such as young individuals, soldiers, and others. Discount Bank is also known for extending attractive offers to Olim Chadashim.

First International Bank of Israel (FIBI)

As the fifth largest bank in Israel, FIBI distinguishes itself with a specialized focus on business accounts and premium offerings tailored for high-net-worth clients. While various banks provide 'private banking' options, FIBI is particularly notable in this arena for its dedicated services and expertise.

Bank Yahav

Provides an array of banking and financial solutions, offering substantial cost savings and exclusive benefits. The bank belongs to a joint venture of Mizrahi-Tefahot Bank Ltd. and the Company for Economic and Cultural Enterprises. (Hebrew website)

One Zero

Israel’s very first digital or ‘neo’ bank offering the convenience of managing your finances from anywhere at any time using a smartphone or computer. Neo banks often charge competitive fees, as their operational overhead is lower than other banks.

The Postal Bank

Operates as a discounted bank, offering streamlined account options and services. While Postal Bank accounts do not offer overdraft facilities and do not gain interest on balances, the bank is well-regarded for its low fees on essential banking transactions.

The Credit Card Enigma and Other Noteworthy Tips

Pay Attention - Your "Credit Card" may Only be a Bebit Card

While credit cards are a staple in most wallets, it’s essential for Olim to grasp a crucial distinction – many “credit” cards issued in Israel are essentially debit cards. These cards operate on a monthly debit basis, with the freedom to select a convenient debit date from several options: the 1st, 2nd, or 10th of the month. These cards are typically offered by Israeli banks, automatically debiting the full outstanding balance or a set limited amount (subject to interest) from your checking account each month.

Negotiating Credit Limits

Prepare for a departure from your home country’s credit norms. Initially granted credit limits in Israel might appear relatively modest in comparison. Should you require more credit than your initial allocation, a simple call to your bank’s credit card department or an online request might secure a credit limit increase. Overdraft limitations are submitted automatically by most banks according to your financial status but are also negotiable

Installments - A Payment Puzzle

Installments (Tashlumim), a unique payment method in Israel’s banks, allows you to split a transaction interest-free or with very low interest over several months (sometimes up to 24 or even 72 payments) using your bank-issued credit card. Be mindful of potential fees imposed by your bank for this service. However, these installments might deplete your available credit, necessitating pre-approval from the credit card company for future purchases exceeding the card’s limit

Contesting Charges and the Foreign Card Advantage

In contrast to the U.S., contesting credit card charges in Israel, unless fraudulent, can be an uphill battle. Keeping your foreign-issued credit card on hand is a good idea. Nearly all Israeli merchants accept foreign MasterCard and Visa cards. Some even accept American Express cards.

Using foreign credit has its downsides: no installment payments (Tashlumim), and the conversion of Shekels to your card’s currency usually incurs fees.

While credit card companies frequently offer competitive exchange rates, a common drawback is the imposition of a 3-5% currency conversion fee, affecting the overall cost of transactions. A pragmatic, cost-effective solution is to carry a foreign credit card that either waives or minimizes currency conversion fees.

Forex Transactions

Navigating Funds From Israel Overseas – Keep That Foreign Account Open

International Transfers

Venturing into the realm of transferring money from Israel abroad and vice versa is fast and easy.
For instance, the Postal Bank enables its account holders to seamlessly transfer money from their bank account to an international bank account securely, conveniently, and straightforwardly without needing to visit the post office. Clients registered for digital banking (level 4) can initiate a transfer directly from their online account or through the ‘Postal Bank account management’ application.
For bank clients not yet registered for this service, the process involves downloading the form in either Hebrew or English, completing it, and then submitting it via email to [email protected] or by fax to 02-5005300.

It is also important to emphasize that money-transferring services between accounts from Israel and abroad are available at any bank in Israel.

Here is a noteworthy tidbit: You have the option to hold foreign currencies in your Israeli account without converting them to Shekels, thereby sidestepping foreign exchange challenges. However, staying aware of the deposit and withdrawal fees associated with this convenience is essential.

Keeping your foreign bank account post-Aliyah and embracing online banking is highly recommended. Before making your journey to Israel, make sure your foreign account is set up for wire and ACH transfers, ensuring seamless access to your funds. It’s important to pack and bring your foreign checkbook along. To navigate the intricate process of sending foreign currencies overseas, consider keeping them in overseas deposits and transferring funds to Israel only when needed.

Another valuable tip to keep in mind is that having your U.S. dollars in foreign territories can alleviate the FBAR filing stress, as your U.S. dollars remain stateside rather than in Israel. Receiving foreign funds in Israel may require a waiting period of a few days before they are credited to your bank account. You’ll need the IBAN (Mispar Zahav) of your Israeli bank account to facilitate overseas transfers.

Domestic Transfers

Transferring funds between Israeli bank accounts is a straightforward process. Standard transfers can be easily initiated through online platforms or bank tellers. However, your bank may require additional details for larger sums, as discussed earlier.

Decoding bank account IDs in Israel is simple. Each bank is identified by a 1 to 2-digit number, and each branch has a unique 3-digit code. The account number typically ranges from 5 to 7 digits, though it can sometimes be longer.

The major bank codes are as follows:

When it’s time to shuffle funds locally, these three sets of numbers, paired with the account holder’s name, are all you need. Usually, if a transfer is executed between two branches of the same bank, it might go through as a same-day transaction,
provided you make the bank’s cut-off time. However, transfers between two different banks will usually clear only on the next business day. If you’re willing to incur an additional fee, an IBAN-powered transfer can guarantee same-day transactions.

Foreign Currency Conversion - Where to Exchange Currencies

The journey to Israel often includes a pit stop at the foreign exchange station, where converting your currency to Shekels becomes necessary. Choosing the optimal location for this financial transformation involves considering options such as banks, post offices, and money changers. Additionally, the foreign-issued credit card can be advantageous, but be cautious of hidden foreign exchange fees that may lurk in credit card transactions.

Among the options, money changers, especially those located beyond the airport and tourist zones, generally offer better exchange rates and quicker turnaround times. Yet, tread carefully and shop around, as competition is fierce. The golden rule: only deal with licensed and reputable money changers. Check current exchange rates here.

Money changers also act as intermediaries for converting foreign checks to Shekels, a service also provided by banks. However, cashing foreign checks at a bank incurs a 1-1.5% fee plus an exchange rate fee in addition to waiting time. To avoid this fee cascade, consider keeping your foreign bank account and utilizing online banking, wire transfers, or prompt deposit transfers.

To wire or not to wire? That’s the question. Comparing wire fees with check-cashing fees is the name of the game. Imagine you’re converting $20,000 into Shekels. A $50 wire fee might seem reasonable, accounting for 1/4 of 1%. However, if you’re transferring a smaller sum, say $250, that 20% wire fee sting could make a check a more economical choice.

Pro tip: Check if your money changer has a bank account in your home country. Opting for a domestic wire transfer can save you some pennies.

In summary, planning your financial journey to Israel requires foresight. Navigating the banking landscape with shrewdness can assist you in avoiding unexpected surprises. Stay prepared and make your Israel banking experience a smooth sail.

Taxes

What you Need to Know

The tax system in Israel is applied on a personal basis. Income tax is calculated on a sliding scale, meaning the more you earn, the higher the tax rate. Israel has one of the highest tax rates globally, constituting approximately 25% of the average household income.

Individuals are taxed at graduated rates of up to 47% annually. The following rates apply to income (the amount of income is stated in new Israeli shekels – ILS and may change from time to time):

  • Up to 81,480 ILS – 0%
  • From 81,480 ILS to 116,760 ILS – 10%
  • From 116,760 ILS to 187,440 ILS – 14%
  • From 187,440 ILS to 260,520 ILS – 20%
  • From 260,520 ILS to 542,160 ILS – 31%
  • From 542,160 ILS to 698,280 ILS – 35%
  • Any sum over 698,280 ILS – 47%
  • If the taxable income is over 698,280 ILS, an additional 3% taxation is applied

Tax Benefits for Olim

Olim enjoy special tax breaks
Embarking on the adventure of making Aliyah opens new horizons and introduces a touch of financial optimism. This is because the Israeli tax landscape offers unique benefits and perks for Olim who are embracing this exciting chapter of life. For example:

  • Reduced car taxation – Olim Chdashim can enjoy purchasing a car at a reduced tax rate within three years of making Aliyah
  • Tax discounts on shipping – The local Customs Authority offers tax discounts or exemptions on shipping household items, purchasing vehicles, and importing business equipment
  • Property tax discounts – In all Israeli cities and towns, Olim frequently qualify for substantial property tax (Arnona) discounts, typically ranging from 70-90% for properties up to 100 sq.mt. These discounts are commonly accessible during the initial two years following Aliyah, providing Olim the opportunity to benefit for a 12-month period.

Asset Management and Investing

What you need to know about managing your investment portfolio in Israel

Making Aliyah can shift your perspective on life; in return, your outlook on economic sentiment may change. Being introduced to emerging Israeli companies and the general business landscape can reveal opportunities that you may not have considered in your home country. As an Oleh, your financial perspective can undergo a transformation. Therefore, it’s generally advisable to review your investment portfolio upon making Aliyah.

Tax Considerations

Tax considerations play a crucial role in shaping your investment strategy, particularly in connection to your residency status. Depending on your situation, it is advisable to capitalize on changes in your tax status to optimize both current and future tax rates on your investments.

For American investors in Israel, another crucial aspect to consider is their investment approach. While technically allowed to invest in mutual funds worldwide, it often becomes complex from a tax perspective due to the classification as Passive Foreign Investment Corporations (PFICs). As a result, foreign mutual funds can lead to substantial tax liabilities – sometimes as high as 60-80%. However, this doesn’t preclude investors from creating diversified portfolios with local financial institutions comprising of stocks, bonds, and other securities.

You can take charge of your portfolio independently or collaborate with professionals, including licensed Israeli portfolio managers, to tailor your investments to your unique circumstances. Keep in mind that some Israeli banks, unfamiliar with US tax regulations, inadvertently invest in mutual funds for American clients, potentially causing complications. Therefore, seeking professional advice is recommended if you hold Israeli mutual funds.

Asset administration

Managing assets from overseas is becoming more intricate, especially with heightened banking regulations post-9/11 and limited local branch access. Sizeable transfers often require your in-person presence, and many US banks have requested non-residents to either close their accounts or transfer their dealings to separate management divisions.

Investment Portfolios

Typical portfolios often display a local bias in their asset distribution. Investment managers naturally gravitate towards domestic investment funds, denominated in the local currency, emphasizing local stocks. This home bias is a well-established trend with logical justifications and often valid motives. However, when considering a relocation from your home country, it’s wise to contemplate portfolio adjustments that align with your new locale, currency, and global exposure.

Investing in Israel

How can investing in the Start-Up Nation jumpstart your portfolio?

Warren Buffett, one of the world’s most highly respected investors, remarked on his acquisition of the Israeli company Iscar in 2006, stating, “We live in a dangerous world as it is, and in the long term, the risk premium in Israel will not be different from the US’s.” While past performance cannot guarantee future outcomes, several compelling factors make investing in Israel an appealing prospect, particularly for Olim.

The TASE

The TASE (Tel Aviv Stock Exchange) is Israel’s primary index. You can invest in it via your bank or through a brokerage firm that is a member of the TASE.

Investing With Your Israeli Bank

When considering investing in the Tel Aviv Stock Exchange (TASE) through a bank, you’ll need to establish a dedicated investment account. While this can be arranged before or after Aliyah, the process is much easier once you’ve moved to Israel. This new account will be accessible alongside your existing account through the bank’s website.

Choosing bank-assisted investment involves a systematic process. Transactions within the investment account necessitate your explicit approval. Accredited investment advisors within the bank can provide personalized advice based on your specific needs. However, the ultimate decision and responsibility rest with you, formalized through a signed agreement. Clients retain authority over any alterations to their investment portfolio’s composition. While branches may occasionally suggest adjustments, it is advisable for clients to stay informed about market trends for timely decision-making.

It’s worth noting that banks do not charge fees for their investment advisory services; their compensation is derived from higher fees associated with other bank services.

Portfolio Managers

Banks operate under the constraint that all transactions in your investment account necessitate your approval. Hence, they solely employ licensed investment advisors to offer tailored investment advice aligned with your preferences. However, a distinctive avenue emerges through independent portfolio managers (menahalei tikim), with the capacity to oversee your bank account (as well as brokerage accounts). These managers, whether autonomous or associated with brokerage firms (operating independently of banks), are entrusted with the task of managing your funds. Collaborating closely, you outline your risk preferences, investment objectives, income prerequisites, and other distinct choices, subsequently delegating the authority to them to make investment decisions on your behalf.

Brokerage Firms - Expanding Investment Options

Brokerage firms are an alternate avenue for direct investment in Israel. Like banks, they facilitate the administration of your assets, encompassing mutual funds and individual securities. Unlike banks limited to providing investment advice, brokerage firms (alongside independent portfolio managers) actively manage your finances. Engaging with brokerage firms offers several advantages, including reduced transaction expenses and holding fees compared to banks. Additionally, they provide user-friendly web access and accessible phone support. However, it’s important to note that brokerage firms lack an extensive branch network spread across the country, unlike banks.

Loans

Borrowing Today for a Better Tomorrow

Whether you’re looking to open a business, purchase a new car or a home, or simply seeking to settle a debt, loans serve as the gateway to transforming your aspirations into reality. In Israel, the most secure avenue for loan applications is through your bank. However, prior to applying, it’s crucial to be mindful of the interest rates associated with the loan (halvaa).

While the primary criterion for loan approval is contingent on your cash flow, fostering a positive relationship with the staff at your bank can enhance your likelihood of securing a loan approval. In Israel, bankers prefer to have familiarity with loan applicants, so cultivating a personal relationship can influence the approval process.

Ogen - Loans for Those in Need

If your bank lacks information about you or you don’t have a credit report, Ogen, formerly known as the Israel Free Loan Association (IFLA), serves as a non-profit social lending organization committed to providing accessible credit solutions to unprivileged sectors in Israel. It aims to offer interest-free loans to families and small business owners in the low and middle-income brackets. Ogen also provides an expedited loan application process.