Bank or provident fund: where should Savings for Every Child be managed?
Choosing between bank savings and a provident fund can significantly affect the amount accumulated over 18–21 years. This page compares the stability of bank savings with the growth potential of a provident fund, explains the different investment tracks and shows which changes can be made along the way.
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One of the most important decisions in Savings for Every Child (חיסכון לכל ילד) is where the money will be managed: in a bank or a provident fund. It may seem like a small decision because only a few dozen shekels are deposited each month. In practice, because the savings horizon is 18–21 years, the choice can significantly affect the amount the child receives.
Over the years, savings through provident funds invested in the capital market have generally produced higher returns than bank savings at a fixed rateA fixed interest rate; however, if the loan is index-linked, the debt will change according to inflation.. This is also one reason the current state default for families that do not choose is a higher-risk provident-fund track: over a long horizon, the money has greater growth potential.
What is the difference between a bank and a provident fund?
Bank savings
When bank savings are selected, the money is deposited in a savings track with a rate set in advance, either fixed or variable depending on the track.
- Main advantage: Greater stability and less volatility.
- What it means: The money is not invested in the capital market and is therefore generally not affected by sharp market rises and falls.
- Main disadvantage: The money usually has lower growth potential. In other words, you receive more stability but generally less potential growth.
Provident fund
In a provident fund, the money is invested in the capital market—in shares, bondsA type of "loan" that an investor provides to a government or company in exchange for repayment of the principal plus interest. and other financial assets—according to the selected investment track.
- Main advantage: Over long periods, the capital market has historically produced higher returns than bank savings, so the savings have the potential to grow to a significantly larger amount.
- Main disadvantage: There will also be declines, volatility and sometimes weaker years. In other words, you receive more growth potential together with more volatility.
A quick comparison
Bank savings versus a provident fund
| Feature | Bank | Provident fund |
|---|---|---|
| Nature of the savings | InterestThe "price of money" – the amount paid for the use of someone else’s money, as income to the depositor or as a cost to the borrower. known in advance | Investment in the capital market |
| Volatility | Low | May be high |
| Long-term return potential | Usually lower | Usually higher |
| Investment tracks | Limited | Wide variety |
| Moving between providers | Limited | Transfers are possible |
| Who might it suit? | People who prefer stability to return | People willing to tolerate volatility for higher return potential |
Why did the state choose a provident fund as the default?
During the program's early years, parents who did not choose a track received a bank depositA bank savings product in which a sum of money is "locked" for a defined period in exchange for a predetermined interest rate. by default. Over time, after historical results showed that higher-risk provident-fund savings could produce significantly higher returns than bank savings—sometimes even three times as much over a long period—the state changed the default to a higher-risk provident-fund track.
Why did this happen?
The program has a very long savings horizon. The assumption is that over two decades, temporary volatility can be managed more effectively in exchange for greater long-term growth potential. This is not a promise of returns, but it reflects the view that the capital market may be more suitable for long-term savings.
Investment tracks in a provident fund
If you choose a provident fund, you must choose an investment track. Tracks are available at different risk levels, along with designated tracks for particular populations:
- Low-risk track: Lower exposure to shares and more conservative investments. Volatility is generally lower, but so is long-term growth and return potential.
- Medium-risk track: Combines shares, bonds and more conservative investments, seeking a balance between growth potential, risk and volatility.
- Higher-risk track: Greater exposure to the capital market and shares. Historically, tracks of this kind have produced higher returns over time, but they are also more volatile and may experience significant declines.
- Designated tracks: These include Halacha tracks, which follow Jewish-law investment principles, and Sharia tracks, which follow Islamic-law investment principles.
Can the track be changed later?
Yes. If the money is managed in a provident fund, you have considerable flexibility and can do the following at any time:
- Move between investment tracks and change the risk level.
- Move between management companies. Choose the provider to which you want to transfer the money, and it will guide you through the transfer.
Example
Some parents choose greater capital-market exposure when the child is young and reduce risk as the child approaches age 18. This flexibility is one advantage of a provident fund.
Which option is preferable in practice?
For savings lasting 18–21 years, there is a strong argument for a provident fund because historically the capital market has produced higher returns than bank savings. For many families, and following the state's change of default, a provident fund has therefore become the more natural choice.
It is still important to understand that there will be weaker years and sometimes sharp declines. When choosing a track invested in the capital market, take a long-term view and do not panic over temporary volatility.
How to find where the child's savings are managed
How to double the Savings for Every Child deposit
You can add an amount from the child allowance, doubling the monthly deposit and significantly increasing the savings available in the future.
How to change the child's provident-fund track
Review which track currently manages the savings and consider whether another track better suits your preferences.
Bottom line
The financial difference between the two channels comes down to how you manage risk. If peace of mind and knowing the precise amount at any moment are critical, a bank offers more stability. If your goal is to use a two-decade horizon to maximize the amount the child receives, a provident fund—particularly an equity-oriented track—offers the stronger growth engine, despite the volatility along the way.
Frequently asked questions
Can money be moved from a bank to a provident fund?
Yes, but only new deposits can be redirected. The rules have changed over the years, so check what is possible based on when the savings were opened and the track in which they are managed.
Is a provident fund risky?
A provident-fund track with high capital-market exposure can be volatile, but over long periods the capital market has historically produced higher returns than bank savings. This does not guarantee the future.
Is a higher-risk track worthwhile?
Many people choose it because of the long investment horizon, but it is important to understand that there will also be periods of decline.
What happens if I choose nothing?
The money is deposited automatically according to the state default in effect at the time. Today, that default is a higher-risk provident-fund track.
Summary
Where Savings for Every Child is managed can significantly affect the amount accumulated over the years. Bank savings offer more stability. A provident fund offers greater growth potential together with more volatility. For long-term savings, many people prefer a provident fund, and this is also the option the state currently uses as the default.
The central message is simple: for savings lasting almost two decades, consider not only the stability of the coming year but also the potential of the years ahead.