Finance

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

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.

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 Pepper (Hebrew website) and One Zero operates exclusively online.

Most Banks in Israel are known for charging a small fee (Amlah) for some financial transactions. It’s recommended to check and compare the different fees between each bank prior to choosing your preffered bank.

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 negotiate with 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.

A recent and highly valuable enhancement to banking services, similar to a banking disclosure in the US, 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.

Details included in the banking ID card are account assets, loans, total fees paid, standing bank orders, and any related powers of attorney. It 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 3 years. Clients can also request a Banking ID Card anytime throughout the year to access up-to-date account information.

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

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 and PayBox, 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.

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 (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, although monthly payments might seem like the best option for large purchases, keep in mind that choosing this option, even when paid for monthly, will take up the total purchase amount on your frame. A pre-approval from the credit card company will be needed in order to pay through installments.

In contrast to the U.S., disputing credit card charges in Israel, unless fraudulent, can be a bit more challenging. Keeping your foreign-issued credit card on hand is a good idea. Some Israeli merchants accept foreign MasterCard, Visa cards and 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.

In Israel, the process of check endorsement takes on added complexity. Consider this scenario: Party B, the recipient of a check from Party A, has the authority to transfer the check to Party C. In the event of such an endorsement, Party C, despite lacking any prior connection to Party A, can pursue legal action against Party A if the check bounces.

To avoid potential entanglements, a straightforward preventitive measure proves effective. Adding the phrase “account payee only” or “not negotiable” and drawing two parallel diagonal lines near the recipient’s name on the check can reduce the risk of unauthorized transfers.

*Here’s a bonus: English-written checks are acceptable in Israel; no translation is required.

Olim, be mindful – overlooking municipal bills or other financial obligations could lead to unpleasant surprises. Here’s where a dash of proactive communication can work wonders. Most Israeli municipalities are open to negotiation before resorting to foreclosures. They are willing to explore payment plans that suit your circumstances or even consider reducing the bill to a more manageable amount. Remember, engaging with them before a foreclosure process (Ikul) could be your key to sidestepping financial complications.

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:

• Bank Hapoalim – 012
• Bank Leumi – 010
• Mizrahi Tefahot Bank – 020
• First International Bank of Israel – 031
• Discount Bank – 011
• Mercantile Discount Bank – 017

When it’s time to shuffle funds locally, these 3 sets of numbers, paired with the account holder’s name, are all you need. Usually, if a transfer is executed between 2 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 2 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.

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 – New Olim can enjoy purchasing a car at a reduced tax rate within 3 years of making Aliyah
• Tax discounts on shipping – The local Customs Authority offers tax discounts or exemptions on shipping household items 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 2 years following Aliyah, providing Olim the opportunity to benefit for a 12-month period.

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 the 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.

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.

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.

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. He stated: “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 (Tel Aviv Stock Exchange – Habursa) 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.

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 require 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.

Banks operate under the constraint that all transactions in your investment account require your approval. Hence, they solely employ licensed investment advisors to offer tailored investment advice aligned with your preferences. However, a distinct 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 choices, subsequently delegating the authority to them to make investment decisions on your behalf.

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.

Ogen serves as a non-profit social lending organization committed to providing accessible credit solutions to lower income communities 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.