Investments Houses to Compete With Banks for Short-term Savings

New, short-term savings vehicle will offer higher interest rates than those paid by Israel’s banks for short-term deposits.

An amendment to the securities law that was approved by the Knesset Finance Committee on Monday, will give savers the option of depositing money with investment houses and getting higher interest rates than those available from banks.

The new law allows investment houses to offer savers a new instrument, called a lender deposit fund, which will compete with traditional bank savings plans. The lender deposit fund will invest the money in bank deposits of Bank of Israel short-term bonds (known as makams.) The law was proposed by Israel Securities Authority chairman Shmuel Hauser.

“Through the lender deposit funds, the public will have the option of receiving a better interest rate,” said Hauser. ”These might be money market funds, but with very little volatility and, therefore, much safer than other financial products. This is an important law and great achievement for the Israeli capital market.”

With the Bank of Israel’s base lending rate at just 1%, short-term savings accounts pay interest of zero or a little more, especially for smaller savers and those with money in short-term accounts. The amendment aims to create more competition for savings, spur banks into improving the terms they offer depositors and increase activity in the local capital market. Another benefit to those who invest in lender deposit funds will be the ability of savers to determine the time frame of the investment, with the possibility of withdrawing cash once a week.

Knesset Finance Committee chairman Nissan Slomiansky (Habayit Hayehudi) called the change to the securities law just the first of several steps that would increase activity in the local capital market.

At least one member of the financial services industry responded by saying the committee's initiative was not sufficient to foster greater competition for savers’ money.

A change in the law will not alter the financial interest of banks in directing most savings into regular deposits, where the their profit spread is higher, said Excellence Nessuah Brokerage Services CEO Elad Benbaji, who also serves as co-chairman of the Association of Non-Bank Members of the Tel Aviv Stock Exchange. “This proposal will only become effective if the client has the alternative of opening an account with a stock exchange member to buy lender deposit funds,” he said.

Ofer Vaknin