Bank deposit: A familiar, simple way to "lock up" money at the bank
A Bank deposit is a simple, conservative way to save money for a defined period and receive Interest known in advance. On this page, we explain how deposits work, the types available, their advantages and disadvantages, and how to compare the Interest rates, savings periods, and withdrawal terms offered by banks.
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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. is the "older sibling" of conservative savings products. It is a simple, common product in which you "lend" the bank a sum of money for a predetermined period (such as 3 months, a year, or more), and in returnThe profit (or loss) from an investment over a certain period, usually expressed as a percentage of the original amount invested., the bank pays you 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..
Who might a bank deposit be suitable for?
| Peace of mind and certainty | A safe alternative to a current account | Short-term money management |
|---|---|---|
| For those seeking complete peace of mind and wanting to know exactly how much money will be waiting for them at the end. | For those who want a safe, simple alternative to leaving money in a current account. | For managing money in the short term, when the principal must not be put at risk. |
Advantages: Why choose it?
- Simplicity and clarity: You do not need to be financial experts. The terms (duration, amount, and interest) are known and set in advance.
- High certainty: You know exactly how much you will receive at the end, regardless of what happens in the stock market.
- Maximum safety: This is a direct commitment from the bank to you—the level of risk is among the lowest in the market.
- Convenience at a click: You can open and manage everything through your bank's app or website, without needing a securitiesA general term for a tradable financial asset (such as a share, bond, or unit in a fund) that represents a right to an asset or to profits. account or an advisor.
- Suitable for the short term: Particularly suitable for managing money in the short term, when certainty and a sense of security are needed.
Disadvantages: What is the cost?
- Erosion of your money: The interest the bank pays is often lower than the rate at which prices rise (inflationA process of general price increases that reduces the purchasing power of money (the same amount of money buys fewer products).).
This means your money may buy less in the future.
- The money is "locked in": In most deposits, it is difficult to withdraw money early. Early withdrawal may result in "penalties" or the loss of accrued interest.
- Lack of flexibility: If interest rates in the economy suddenly rise, you will remain stuck with the lower rate you locked in when opening the deposit.
- Nominal taxTax calculated on the total gain without offsetting the effect of inflation (for example, 15% on a money market fund).: You will pay 15% tax on the profit the bank pays you, even if inflation was higher than that profit.
- Relatively low return: Even during periods of high interest rates, bank deposits tend to offer low returns compared with other conservative alternatives.
Table – Advantages and disadvantages of a bank deposit
| Aspect | Advantage | Disadvantage |
|---|---|---|
| Risk level | Very low | No compensation for inflation |
| Return | Fixed/predefined | Interest is usually low |
| LiquidityThe speed and ease with which money can be withdrawn from an investment and converted into cash in a bank account without significant penalties. | Low (depends on exit points) | During the deposit period, the money is illiquid |
| Tax | 15% on nominal profitThe "raw" monetary gain without taking into account the decline in the value of money due to inflation. | The tax rate remains the same (15%), regardless of erosion from inflation |
| Management | Easy | May lead to passivity |
The bottom line
- What it is:
- Savings at a bank with a predetermined interest rate and very low risk.
- What it is not:
- A product that preserves the value of money or protects against the erosion caused by inflation (rising prices).
- Who it is suitable for:
- Money you need in the very short term, or money you do not want to risk at all.
- Main advantage:
- Simplicity and a sense of security.
- Main disadvantage:
- Erosion of your money's value—and sometimes paying tax on that erosion.
Compare and choose wisely
Where is it most worthwhile to save? Interest rate comparison
Bank of Israel data allows us to look behind the scenes and see which bank actually offers more. Remember: interest is only part of the picture.
Before placing money in a bank deposit, it is worth reviewing the table we created for you, based on Bank of Israel "Comparison Line" data. The table lets you compare the interest rates offered by banks and check how long the money must be locked in for each deposit.
What is important to look for in the tables?
- Interest type: Is it fixed or variable?
- Withdrawal dates: Is the money "locked in," or are there dates when it can be withdrawn without penalty?
- Index linkage: Is the deposit linked to the Consumer Price Index (CPI) (protection against Inflation)?
Frequently asked questions
Security and profitability: Is my money safe in a Bank deposit?
Yes. It is one of the most conservative products, as it is the bank's direct commitment to return your money. The risk is considered negligible.
Does the deposit actually "earn" money?
Not always. The number in your account will indeed grow, but if product prices (Inflation) rise faster than the Interest you receive, your purchasing power will actually erode. In that case, the profit is only "on paper."
Do you pay tax on a Bank deposit?
Yes. 15%Tax on Interest.
Important to know: the tax is Nominal tax. That is, the state taxes the monetary profit you received, even if the value of the money has actually eroded due to Inflation.
A brief example:
If 10,000 NIS is deposited for one year at an Interest rate of 3%, the amount at the end of the year will be 10,300 NIS.
The Interest is 300 NIS, on which tax of 15% is paid—namely, 45 NIS.
The tax is paid even if product prices rose that year by, for example, 4%, so the money actually buys fewer products than it could at the beginning of the year.
Types of deposits and differences: What is the difference between a Bank deposit and a savings plan?
- Deposit: Usually a one-time amount for a defined period, with Interest set in advance.
- Savings plan: Usually ongoing savings with monthly deposits, changing terms, and less flexibility.
What is the difference between a short-term and a long-term deposit?
- Short-term deposit: A period of weeks or months.
- Long-term deposit: One year or more.
The longer the deposit, the higher the Interest may be and the lower the flexibility.
Fixed Interest versus CPI-linked: Which is better?
- Fixed Interest: You know exactly how much you will receive at the end. Suitable when Inflation is low.
- CPI-linked: Your money is "updated" according to the cost of living. A track designed to protect you against unexpected price increases.
Can the Interest on a deposit change during the term?
- In a fixed-interest deposit—no.
- In a Ribit Mishtana (ריבית משתנה) deposit—yes, according to a mechanism set in advance (for example, a change based on the Bank of Israel interest rate or specified dates).
What is a daily deposit (PRY)?
It is a "semi-deposit." The Interest is very low, but the money is liquid and can be withdrawn almost every day. A good solution for those who want to earn a little on money that needs to remain available.
Is a deposit suitable for every amount of money?
Deposits can suit both small and large amounts, but the larger the amount, the greater the impact of erosion, tax, and terms on the actual outcome.
Is a deposit considered an investment?
Usually not. A deposit is considered a very conservative savings tool, intended for the relative preservation of money and Liquidity management (making money available for use)—not for generating Return.
Managing the deposit: How can you open a Bank deposit?
Easily: on the bank's website or app, by phone, or at a meeting with a branch representative. The options and convenience vary from bank to bank, and sometimes also between different types of deposits.
What happens if I need the money early?
In most cases, you can withdraw it, but you will pay a "penalty": the bank will significantly reduce the Interest promised to you.
Tip: If you are unsure about the date, it is better to split the money among several deposits with different withdrawal dates.
Can money be split among several deposits?
Yes. You can open several deposits with different amounts and terms. This way, part of the money is available sooner, while another part is locked in for a longer period.
Note: this is a way to manage Liquidity (making money available for use), not to increase profit.
Can you negotiate the Interest rate with the bank?
Absolutely! The Interest rate shown on the website or app is the starting point. The larger the amount, or the better the offer you present from a competing bank, the better your chances of improving the terms. Later on this page, you can see the Interest-rate comparison table.
Do all banks offer the same terms?
Not at all. There are significant differences between banks. It is always worthwhile to compare Interest rates, terms, index linkage, and withdrawal conditions before locking up your money.
Why does the bank want me to open a deposit so badly?
Your money is raw material for the bank. It uses it to provide more expensive loans to other customers.
In return, the bank pays Interest to those who deposit money.
In summary,
Despite its safe image, it is important to remember the "fine print" of economic reality:
- The price of certainty: Interest will usually not keep up with the cost of living. - Tax on "illusory profit": the state collects 15% tax on the numbers that have grown, even if your actual purchasing power has declined. - Fit for purpose: this is an excellent tool for managing short-term cash, such as money for a vacation in six months, but it may be problematic as a solution for building wealth over the long term.
Remember: understanding the limitations is no less important than knowing the advantages. Do not let peace of mind dull your financial awareness.