Bank of Israel: With Few Options, Israelis Hoarding Cash

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Illustrative photo of Israeli bills. (Nati Shohat/Flash90)

Faced with a lack of investment opportunities, Israelis have decided to sit things out and hold onto their cash, according to a Bank of Israel report. Currently, there is over NIS 230 billion in the checking accounts of Israelis, available for immediate withdrawal but not earning any interest.

Two weeks ago, Israeli banks issued reports on their activities that indicated that they had seen a sharp rise in deposits. Deposits so far in 2016 have amounted to some NIS 530 billion, compared to about NIS 500 billion for all of 2015. Most of the increase in deposits were credited to non-interest checking accounts (over v’shav). At this rate, 2016 will see a 12 percent increase in deposits over 2015’s level.

The upshot for this for the banks has been a sharp loss in fees for investments, such as for the purchase of stocks. Income for banks from fees has fallen by about a billon shekels, with banks earning 17.5 percent less so far in 2016 than at the same point in 2015.

As recently as 2011, Israelis had as little as NIS 68 billion in “open” funds that were not invested in interest-bearing bank accounts, bonds or stocks. Since that time, the amount of money held in checking deposits that is free for withdrawal at any time but without bearing interest has risen, passing NIS 100 billion in 2014 and reaching NIS 230 billion today.

The reason for this, said the bank, was clearly the near-zero interest rates  banks were paying out. In addition, yields for bonds have been flat in recent months. The only outlet that is paying a decent rate of return is real estate, but due to high prices, the average investor has been locked out of the real estate market.

“If in the past there was at least a symbolic return on even short-term investments, even that doesn’t exist today,” Alon Glazer, a financial industry executive, told Globes. “It’s just not worth it for many people to go through the process of buying a bond or a certificate of deposit. The best that people feel they can do today is keep what they have, and that means holding onto cash.”