Makam (מק״מ): a short-term loan to the state
Makam is a solid investment channel for up to one year through which you lend money to the State of Israel and profit from the difference between the purchase price and the amount received at redemption. This page explains how Makam works, its advantages and disadvantages, and how it compares with a bank deposit and money market fund.
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Makam"Short-Term Loan" – a one-year government bond that serves as a relatively low-risk investment instrument. is one of the most solid investment channels in Israel. If a deposit is a loan you give the bank, Makam is a direct loan you give the State of Israel (through the Bank of Israel) for a period of up to one year.
The Bank of Israel issues a new Makam series once a month, and each such series is redeemed after one calendar year (12 months).
Makam is considered one of the most solid investment channels in Israel because the Bank of Israel itself stands behind it.
How does profit work in Makam? The discount method
Makam does not pay monthly 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. that enters the account. Instead, you buy it at a price lower than NIS 1 per unit, and on the redemption date you receive NIS 1 for each unit.
Example: how profit is created in Makam
Suppose you bought 1,000 Makam units at a price of NIS 0.98 per unit.
The calculation:
- Purchase price: 1,000 units multiplied by NIS 0.98—an investment amount of NIS 980.
- Amount on the redemption date: 1,000 units multiplied by NIS 1—you will receive NIS 1,000.
- Profit: The difference between the redemption amount and the investment amount is NIS 20, before tax and fees.
Profit in Makam is created by the difference between the low price at which the units are purchased and the full value received on the redemption date.
The advantages
- Very low risk: Because it is issued by the Bank of Israel, the risk of nonpayment is considered minimal.
- Nominal certainty: The value received at redemption (NIS 1 per unit) is known in advance to someone who holds it until the end of the period.
- LiquidityThe speed and ease with which money can be withdrawn from an investment and converted into cash in a bank account without significant penalties.: Makam is traded on the stock exchange and can be sold on any trading day—unlike 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. in which the money is locked.
- An alternative to a bank deposit: Makam usually provides a higher returnThe profit (or loss) from an investment over a certain period, usually expressed as a percentage of the original amount invested. than a bank deposit.
The disadvantages: what should you be careful about?
- Nominal taxTax calculated on the total gain without offsetting the effect of inflation (for example, 15% on a money market fund). on the interest: Like a bank deposit, a 15% tax is paid on the profit “on paper.” During periods of high inflationA process of general price increases that reduces the purchasing power of money (the same amount of money buys fewer products)., you may pay tax even though the purchasing power of your money is shrinking.
- Sensitivity to changes in interest rates: Selling early may cause a small loss in cases where interest rates have risen, because new Makam issues will offer a higher return than the current Makam.
- Trading fees: Unlike a deposit (which is free), buying Makam through a bank involves purchase and sale fees. Before buying, it is important to make sure the fee is not higher than the expected profit.
- Not a solution for managing current money: Makam is less flexible than a money market fundA mutual fund that invests in low-risk, short-term assets and serves as a liquid alternative to a bank deposit. and is not suitable for the daily management of liquid money.
Table—advantages and disadvantages of Makam
| Aspect | Advantage | Disadvantage |
|---|---|---|
| Risk level | Very low | - |
| Return | Known in advance if held until redemption | Usually low |
| Liquidity | High (through the stock exchange) | Lower than a money market fund |
| Tax | — | 15% on the nominal profitThe "raw" monetary gain without taking into account the decline in the value of money due to inflation. |
| Management | Very simple | Requires an investment account |
The bottom line
- What it is:
- A very safe tool for preserving money for a period of up to one year.
- What it is not:
- A tool for getting rich quickly or a flexible substitute for a current account for very small sums.
- Who it suits:
- Someone who knows when the money will be needed, wants a known return, and is prepared to invest a sum that justifies the purchase fees.
- The main advantage:
- High safety and simplicity.
- The main disadvantage:
- Limited liquidity and less worthwhile taxation.
Frequently asked questions
How do you earn money from Makam?
Makam is bought at a price lower than NIS 1 per unit, and NIS 1 is received on the redemption date. The profit is the difference between the purchase price and the amount received at the end of the period.
- For example: Suppose you bought 1,000 Makam units at a price of NIS 0.98 per unit.
- Total investment: NIS 980.
- On the redemption date: You will receive NIS 1 for each unit, meaning NIS 1,000.
- Profit: NIS 20 (before tax).
How do I know when the money comes back to me? (The secret of the numbers)
Every Makam has a 3-digit code that reveals when it is redeemed. Let us decipher Makam 611:
- The left digit (6): The month in which the Makam will be redeemed (June).
- The middle digit (1): The week within that month (the first week).
- The right digit (1): The year (2021/2031). In simple terms: The Makam number is a short code that helps you know exactly when you will receive the money back.
Do you pay tax on Makam?
Yes. The profit received from Makam is subject to a 15% tax. The tax is calculated nominally, meaning on the profit “on paper,” without taking price increases (inflation) into account. If the value of Makam rose but the value of the money was actually eroded because prices rose—you still pay tax.
- A short example: You purchased Makam for NIS 10,000 and received NIS 10,300 at redemption. The profit is NIS 300, on which you will pay 15% tax (NIS 45). This is so even if product prices rose by 4% in the same year and your actual purchasing power fell.
What affects the price of Makam during the period?
The price of Makam on the stock exchange is mainly affected by:
- The Bank of Israel interest rate.
- The inflation rate (price increases) and inflation expectations.
- General market conditions.
It is important to remember: If you hold until redemption, the price is known in advance. If you sell earlier, you will be exposed to market changes.
Is the money in Makam liquid?
Makam can be sold on any trading day, but the price depends on demand, supply, and changes in market interest rates.
Compared with a money market fund: In a money market fund, redemption is made according to a fixed daily price and it is considered more liquid and “stable” for ongoing management, while an early sale of Makam may end in a small profit or loss according to the market price at that moment.
What happens if you buy Makam for a period shorter than a year?
Makam issues that are redeemed in several months can be purchased.
For example: You bought Makam for NIS 0.98 that is redeemed in six months. The profit (NIS 0.02) reflects a return of approximately 2% for six months, which is approximately 4% in annual terms (before tax).
Is Makam considered risky?
No. It is one of the most solid instruments in Israel. The main risk is primarily real erosion (if inflation is higher than the profit) or slight price volatility for someone who chooses to sell before the redemption date.
How do you invest in Makam in practice?
The investment is made through a securities account at a bank or investment house. You simply search for the desired Makam number and buy it exactly as you would buy a share or bond.
In summary: is Makam the right track for you?
Makam is a solid and high-quality solution for someone looking for a “safe parking place” for money over the short term (up to one year) and who prefers the certainty and securityA 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. of the Bank of Israel over high returns or volatility.
- Compared with a money market fund: Makam requires a little more “operation” (active purchase of a security and purchase fees), while a money market fund is more liquid and convenient for managing current money. - Compared with a bank deposit: Makam allows you to sell the security on any day on the stock exchange and offers greater flexibility than “locking” the money in a bank for a long period.
If you have a sum of money that you know you will need at a clear point in the near future, Makam is one of the most stable and simple tools for protecting your principal.