You have shekels you will not need for a few months, maybe a rental deposit refund, the tail of your Sal Klita, or savings you are holding before a bigger purchase, and you want them to earn something without being locked away. Back home you might have swept them into an insured savings account and stopped thinking. In Israel two facts a lifelong Israeli never pauses on reshape the decision for a new oleh: there is no FDIC or FSCS-style deposit insurance here, and for a US person the tidy Israeli answer, a money-market fund, is almost certainly a PFIC. This is a guide to the choice, not a fund pick.
Read this before you move any money
This is general educational information, not tax, legal, or financial advice. Cross-border (US, UK) and Israeli tax interact in complex ways, and the PFIC regime and its penalties can be financially severe, so consult a qualified cross-border professional before acting. The comparison here is deliberately company-free: we teach the criteria, and the named, side-by-side comparison lives in Meidahon Reviews.
First surprise: Israel has no deposit insurance
In the US your bank balance is insured by the FDIC up to $250,000; in the UK the FSCS covers £85,000. Almost every new oleh assumes something similar exists here and is startled to learn it does not. Israel has no deposit-insurance scheme and no agency that repays depositors if a bank fails, and it is one of only a few developed economies without one. What protects your money instead is the Bank of Israel, whose Banking Supervision Department oversees the stability of the banks with a view to protecting depositors’ funds, backed by an implicit, non-statutory expectation that the state would not let a major bank collapse. That is a supervisory posture, not an insurance promise, and it is worth understanding plainly rather than assuming a safety net that is not written into law.
In practice this does not mean an Israeli bank deposit is unsafe. The banking system is concentrated and closely supervised. But it does change how you read the word “safety” in this decision: none of the three options below carries a statutory guarantee, so “safest” here means “shortest, simplest, and closest to the supervised banking core,” not “insured.”
What a money-market fund (keren kaspit) actually is
The instrument most Israelis reach for to park cash is a קרן כספית (keren kaspit, money-market fund). It is worth being precise about what it is, because the label “fund” carries US tax weight. A keren kaspit is a קרן נאמנות (Keren Neemanot) (mutual fund), which is a security regulated by the Israel Securities Authority under the Joint Investment Trust Law. It is not a bank deposit, and it is not a Capital Market Authority product like a pension fund or an insurance policy. By its governing rules it holds a large share of its assets in מק״מ (makam, the short-term bill the Bank of Israel issues on behalf of the government), alongside large wholesale bank deposits and high-rated bonds. That is why its yield sits close to the short-term Bank of Israel rate rather than the thinner rate a retail deposit tends to pay.
Two mechanics matter for a short horizon. First, liquidity: you can redeem a money-market fund every business day, so your money is back in your account in about a day (T+1), with no break penalty. Second, cost: the fund charges a small management עמלה (Amlah) (fee) and is exempt from the securities-account and buy/sell commissions a normal fund would incur, so the drag is low. Contrast that with a locked bank deposit (a term פיקדון (Pikadon)), which pays a set rate only if you leave it untouched for the full term and typically forfeits the interest if you break it early.
The Israeli tax split: 15% nominal on a deposit, 25% real on the fund
This is a labelled Israeli-tax section; the home-country layer is separate, above and below. Under Israel Tax Authority rules, the interest on an unindexed-shekel bank deposit is taxed at 15% on the nominal interest, while a money-market fund is taxed at 25% on the real gain, meaning the profit after subtracting the rise in the מדד (Madad) (the consumer price index). Two variants complete the picture: a CPI-linked (צמוד מדד, tzamud madad) deposit is taxed at 25% on its real gain, and a foreign-currency deposit is taxed at 25% on the nominal gain.
The headline rates can mislead. The fund’s 25% sounds worse than the deposit’s 15%, but the fund is taxed only on the realgain, so when inflation is meaningful a chunk of its return is shielded and the effective tax falls well below 25%. The deposit’s 15% is flat and simple, and in very low inflation the two can land close together. Add the fund’s tendency to yield a little more gross (it holds makam and wholesale deposits), and Israelis often find the fund the more efficient home for cash. The point is not that one always wins; it is that you compare them net of tax and fees, not on the headline rate, and that for a US person the PFIC cost can override the whole calculation.
Three options side by side
| What matters | Money-market fund (keren kaspit) | On-demand / short bank deposit (pakam) | Locked term deposit (pikadon) |
|---|---|---|---|
| What it is | ISA-regulated security (mutual fund) | Bank product, short or open term | Bank product, fixed term |
| Liquidity | Daily redemption, about T+1 | On demand or very short, no penalty | Locked; breaking early usually forfeits interest |
| Israeli tax on the gain | 25% on the real (inflation-adjusted) gain | 15% on nominal (unindexed shekel) | 15% nominal, or 25% real if CPI-linked |
| US-person note | Almost certainly a PFIC (Form 8621, punitive) | Not a PFIC (a deposit, not a fund) | Not a PFIC (a deposit, not a fund) |
| Deposit insurance | None; a security, not a deposit | None statutory; supervised banking core | None statutory; supervised banking core |
A worked example with real shekels
Say you park 50,000 NIS that you will need in about six months, and over that period the money earns roughly 1,000 NIS gross while the consumer price index rises about 0.8% (around 400 NIS of that being pure inflation).
- On-demand shekel deposit, 15% nominal. Tax is 15% of the full 1,000 NIS, so 150 NIS, leaving you about 850 NIS net.
- Money-market fund, 25% real. The taxable gain is 1,000 minus the 400 NIS of inflation, so 600 NIS; tax is 25% of that, again about 150 NIS, then a small management fee. Net is roughly 840 to 850 NIS, and it pulls ahead of the deposit when inflation runs higher (more of the return is shielded) or when the fund’s gross yield is higher.
For an Israeli, the two are close and the fund often edges it. Now add the US layer: if you are a US person, that money-market fund is a PFIC. The Form 8621 filing cost and the punitive §1291 treatment can erase the fund’s small Israeli-tax edge and then some, which is why a US-person oleh often lands on the plain deposit for short-term cash and keeps pooled investing for a US-domiciled account. This is the concrete case where the correct answer for you differs from the correct answer for your Israeli neighbour.
What to weigh when parking short-term shekels
In order of impact for a new oleh, here is what actually separates a sensible parking spot from a frustrating one. The list is company-free on purpose; the named comparison is in Reviews.
What to weigh when parking cash for 3 to 12 months
- Yield: what you actually earn netA money-market fund tends to sit near the short-term Bank of Israel rate; a retail deposit often pays less. Compare net of tax and fees, not on the headline rate.
- Safety and regulationNo option here is insured. A fund is an ISA-regulated security; a deposit sits in the supervised banking core. Shorter and simpler reads as safer when nothing is statutorily guaranteed.
- Daily liquidityA money-market fund redeems every business day (about T+1) with no penalty; a locked deposit forfeits interest if you break it early. Match the lock to how sure you are about the date.
- Tax efficiency, including US-person PFICIsraeli tax favours the fund when inflation is meaningful (25% on the real gain). But for a US person the fund is a PFIC, which can flip the answer toward a plain 15%-nominal deposit.
- FeesA money-market fund carries a low management fee and skips securities-account commissions; a deposit has no explicit fee. Small, but it decides close calls.
Common mistakes olim make parking cash
- Assuming an Israeli bank balance is insured like an FDIC or FSCS account. There is no statutory deposit insurance here; the protection is supervisory.
- A US person buying a keren kaspit for its Israeli tax edge without realising it is a PFIC, then facing Form 8621 and punitive US tax that erases the edge.
- Comparing the deposit and the fund on their headline rates (15% versus 25%) instead of net of tax and fees, and missing that the fund is taxed only on the real gain.
- Locking money into a fixed-term deposit for a date you are not sure about, then forfeiting the interest to break it early, when a money-market fund would have stayed liquid.
- Treating Israeli-source interest as covered by the 10-year new-resident exemption. That exemption is for foreign-source income; shekels earning interest in an Israeli bank or fund are Israeli-source and taxed normally.
Compare short-term savings options in Israel
Money-market funds, on-demand deposits, and locked deposits side by side, by yield, liquidity, tax treatment, and the US-person note, in Meidahon's independent comparison.
See the comparison
For shekels you will need in 3 to 12 months, a new oleh chooses among a money-market fund (keren kaspit), an on-demand or short bank deposit (pakam), and a locked term deposit (pikadon). Two facts reshape this that a lifelong Israeli never thinks about. First, Israel has no FDIC or FSCS-style deposit insurance; protection rests on Bank of Israel supervision and an implicit, non-statutory posture, not an insurance promise. Second, an Israeli money-market fund is a security regulated by the Israel Securities Authority, and for a US person it is almost certainly a PFIC, which triggers punitive US tax and a Form 8621 filing. On Israeli tax alone the fund is taxed 25% on the real, inflation-adjusted gain while an unindexed deposit is taxed 15% on nominal interest, so the fund is often efficient for an Israeli. But a US-person oleh may rationally prefer the deposit despite that, because it is not a PFIC. This is general information, not advice.
No, not by a statutory scheme. Israel has no FDIC or FSCS-style deposit insurance and no agency that repays depositors if a bank fails; it is one of only a few developed economies without one. What protects your money is the Bank of Israel, whose Banking Supervision Department oversees the stability of the banks to protect depositors, plus an implicit, non-statutory expectation that the state would not let a major bank collapse. That is a supervisory posture, not an insurance promise. In practice the banking system is concentrated and closely supervised, so a deposit is not unsafe; you just should not assume an insured safety net that is not written into law.
No. A keren kaspit is a mutual fund, which is a security regulated by the Israel Securities Authority under the Joint Investment Trust Law. It is not a bank deposit and not a Capital Market Authority product. By its rules it holds a large share in makam (short-term bills the Bank of Israel issues on behalf of the government) plus large wholesale bank deposits and high-rated bonds, which is why its yield sits close to the short-term Bank of Israel rate. You can redeem it every business day, so the money is back in your account in about a day, with no break penalty, unlike a locked term deposit.
Because for a US person a non-US pooled fund is almost certainly a Passive Foreign Investment Company (PFIC). An Israeli money-market fund is a pooled fund, so it pulls in the PFIC regime: a Form 8621 filing and, by default, the punitive IRC section 1291 method that taxes the gain at the highest historic ordinary rates plus an interest charge. A plain Israeli bank deposit is not a PFIC because it is not a pooled fund. So even though the fund can be more efficient under Israeli tax, a US-person oleh may rationally prefer a bank deposit for short-term cash and keep pooled investing inside a US-domiciled account. This is a US-only issue; UK, Canadian, and South African olim generally do not face PFIC.
An unindexed-shekel bank deposit is taxed at 15% on the nominal interest. A money-market fund is taxed at 25% on the real gain, meaning the profit after subtracting the rise in the consumer price index (the madad). A CPI-linked deposit is taxed at 25% on its real gain, and a foreign-currency deposit is taxed at 25% on the nominal gain. The fund’s 25% headline looks worse than the deposit’s 15%, but because the fund is taxed only on the real gain, its effective tax falls when inflation is meaningful, and it often yields a little more gross. Compare them net of tax and fees, not on the headline rate.
No. The 10-year exemption for new and returning residents applies to foreign-source income. Shekels you hold in an Israeli bank or an Israeli money-market fund earn Israeli-source interest, which is taxed under normal Israeli rules regardless of your oleh status. Note separately that since the 1 January 2026 reporting reform, foreign-source income that stays exempt from tax during the exemption window is now generally reportable, so if you also hold savings abroad, that is a report-but-not-tax question handled in our tax guides, not a reason to expect your Israeli interest to be exempt.
Match the tool to how sure you are about the date. If you want daily liquidity and a return near the short-term rate, a money-market fund fits, subject to the PFIC caveat if you are a US person. If you want simplicity and the flat 15% nominal tax, an on-demand or short bank deposit fits. Reserve a locked term deposit for money you are certain you will not touch, because breaking it early usually forfeits the interest. There is no insured option, so keep short-term cash short and simple, and use the named side-by-side comparison in Reviews to weigh specific products.
