You Saved Through Negative Rates. Israel Never Had Them.
Israel has never used a negative policy rate. The lowest the Bank of Israel rate has ever been set is 0.1%, small but still above zero.8 If you did your saving in the eurozone, Japan or Switzerland, you spent years under a genuinely negative central bank rate, and the instincts you built there do not transfer cleanly to a shekel account.
Not advice
Almost every oleh from a negative-rate economy is blindsided by the same thing: they assume Israel simply ran a milder version of what they left, so the same reflexes apply. It did not. Israel ran a different policy entirely, and the confusion that follows is usually between two phrases that sound alike and mean opposite things.
What is the difference between a negative nominal rate and a negative real rate?
A negative nominal rate means the headline number itself is below zero: a central bank charges commercial banks for parking reserves with it. A negative real rate means the headline number is positive but smaller than inflation, so purchasing power still shrinks. Israelis have lived through the second one many times and the first one never. Conflating them is the single most common mistake on this topic.
| Negative nominal policy rate | Negative real rate | |
|---|---|---|
| What it is | The headline central bank rate is set below zero | The rate you earn is positive but lower than the rise in the מדד (Madad) (consumer price index) |
| Who did it | ECB, Bank of Japan, Swiss National Bank, Danmarks Nationalbank, Riksbank2 | Most economies at some point, including Israel |
| Israel | Never. Floor of 0.1%8 | Yes, repeatedly, whenever inflation ran above the Bank of Israel target band9 |
| What the saver sees | A number below zero, or a fee, on a statement | A small positive number that quietly buys less each year |
The arithmetic is worth doing once, in shekels. A פיקדון (Pikadon) (fixed-term deposit) paying 0.1% in a year when the madad rises 5% leaves you roughly 4.9% poorer in purchasing power, even though nobody ever charged you anything. That is the Israeli experience of the same decade. It felt nothing like a negative rate, and it did the same damage.
Where and when did negative policy rates actually happen?
In a small group of European central banks plus Japan, over roughly eight years. The ECB moved its deposit facility rate to -0.10% with effect from 11 June 2014, cut it in steps to -0.50% from 18 September 2019, and returned it to 0.00% only on 27 July 2022.1 Denmark, Sweden and Switzerland went first or followed close behind.2
| Central bank | Went below zero | Low point | Back to zero or above |
|---|---|---|---|
| ECB (deposit facility) | 11 June 2014, at -0.10% | -0.50% from 18 Sep 2019 | 27 July 20221 |
| Bank of Japan (policy-rate balance) | Announced 29 Jan 2016, applied 16 Feb 2016, at -0.1% | -0.1% | 19 March 202434 |
| Swiss National Bank (sight deposits) | Announced 18 Dec 2014, in force 22 Jan 2015 | -0.75% from the 15 Jan 2015 decision | 22 September 2022, policy rate to 0.5%567 |
| Bank of Israel | Never | 0.1% | Not applicable8 |
Why didn't my bank actually charge me for my savings?
Because the charge mostly stopped before it reached you. The BIS found that the key exception in the transmission of negative rates was banks' reluctance to pass them through to retail depositors, for fear that households would simply withdraw cash and hold banknotes instead.2 Banks absorbed the cost on wholesale and institutional balances, and set their own exemption thresholds mirroring the central banks' tiering. So the household experience of negative rates was usually zero interest and rising fees, not a minus sign.
This matters for what you carry into Israel. If your reference point is “my savings earned nothing for eight years,” note that the nothing you earned was a policy choice by your bank, not the policy rate itself. In Israel the transmission runs the other way: the ריבית (Ribit) (interest) you are quoted on a deposit is positive, negotiable, and varies a lot between banks and between tenors.
What did negative rates do to mortgages?
Not what most savers assume. The BIS documented that Swiss banks raised mortgage lending rates even as government and corporate bond yields fell, because the squeeze on deposit margins had to come out somewhere.2 A negative policy rate is not a cheap mortgage, and a positive policy rate is not automatically an expensive one.
In Israel the link you need to learn is different again. Israeli mortgage tracks are priced off the פריים (Prime) rate and, on index-linked tracks, off the madad. That second one has no European analogue for most olim: on an index-linked track the outstanding principal itself rises with inflation, so inflation can increase what you owe rather than quietly erode it. Savers arriving from a negative-rate economy tend to read inflation only as a friend to borrowers. In Israel that is half true at most.
How should a saver from a negative-rate economy recalibrate here?
By re-testing three imported assumptions rather than acting on them. First, “holding cash is a certain loss” was a statement about a specific policy regime, not a law of nature; in a positive-rate economy the honest question is what a deposit pays against the madad, not whether it beats zero. Second, “anything is better than the bank” is how a lot of eurozone savers ended up in pooled funds they did not fully understand, and for some of them that decision now has a US tax cost attached. Third, index-linkage is mainstream in Israel rather than exotic, on deposits, on bonds and on mortgages, so comparing a תשואה (Tsuaa) (return) figure without checking whether it is a real or nominal number will mislead you.
Israeli tax treatment
Interest earned inside Israel is Israeli-taxable, and it is normally collected by deduction at source, so the bank hands the tax over before the money reaches you.13 Separately, as an תושב חוזר (Toshav Chozer) (returning resident) or a new oleh you get a 10-year exemption from Israeli tax on foreign-source income, which covers the interest on that eurozone account you never got round to closing, counted from your aliyah date.12
Still exempt, no longer invisible
Home-country treatment, and PFIC for US citizens
US citizens and green card holders. Your Israeli exemption does nothing for the US side. You keep filing on worldwide income, and interest stays US-taxable. The bigger issue is what the negative-rate years pushed you into. Any non-US pooled fund, a European UCITS fund, a money market fund, or an Israeli קרן נאמנות (Keren Neemanot) (mutual fund), is a Passive Foreign Investment Company for US purposes. Each one generally requires Form 8621, and the default treatment is punitive rather than merely inconvenient.10 This is the clearest case where the standard advice given to an Israeli saver is the wrong advice for you.
UK, Canadian and South African olim. Your home-country obligation usually ends when you become non-resident under that country's own residence rules, and there is no equivalent of the US citizenship-based reach. If you left accounts open back home, check whether interest is still taxed at source there before assuming the Israeli exemption ends the matter.
Treaty treatment
Treaties allocate taxing rights and relieve double taxation, but they do not create the Israeli benefit. The 10-year exemption is domestic Israeli law, not a treaty provision, so it binds Israel and nobody else.12 The US-Israel treaty, like other US treaties, contains a saving clause that preserves the United States' right to tax its own citizens as if the treaty did not exist, which is why the American case above is not fixed by treaty relief.11 Where double taxation genuinely arises, the mechanism is a foreign tax credit, not an exemption.
Quick check
An oleh from Frankfurt says: 'Israel had negative rates too, my Israeli cousin earned nothing on her savings for years.' What is the accurate correction?
Israel has never set a negative policy rate. The lowest the Bank of Israel rate has ever been is 0.1%, which is above zero. What Israelis experienced instead was a negative real rate, meaning a small positive rate that was still below inflation. Negative nominal policy rates were confined to the ECB, the Bank of Japan, the Swiss National Bank, Danmarks Nationalbank and the Riksbank. The eurozone deposit facility was below zero from 11 June 2014 to 27 July 2022, Japan from February 2016 to March 2024, and Switzerland from January 2015 to September 2022. Most households never saw a minus sign, because banks declined to pass negative rates to retail depositors and absorbed them on wholesale balances instead.
No. The Bank of Israel has never set a negative policy rate. The lowest it has ever been set is 0.1%, which is small but above zero. Israel used other easing tools during those years, but the headline rate stayed positive throughout, unlike the eurozone, Japan and Switzerland.
A negative nominal rate means the headline number itself is below zero, so holding money costs you directly. A negative real rate means the rate is positive but smaller than inflation, so purchasing power falls anyway. Israelis have experienced the second repeatedly and the first never. The two are routinely confused.
About eight years. The ECB deposit facility rate went to -0.10% with effect from 11 June 2014, was cut in stages to -0.50% from 18 September 2019, and returned to 0.00% on 27 July 2022. That covers the whole period most olim from the eurozone were saving before aliyah.
Banks were reluctant to pass negative rates to retail depositors, because households can withdraw cash and hold banknotes instead. The BIS identified this as the key gap in transmission. Banks absorbed the cost on wholesale and institutional balances, so most households experienced the episode as zero interest rather than a charge.
Not automatically. The BIS documented Swiss banks raising mortgage lending rates even while bond yields fell, because squeezed deposit margins had to be recovered somewhere. A policy rate below zero does not translate mechanically into cheap borrowing, and a positive policy rate does not translate into expensive borrowing either.
For an Israeli-only taxpayer, no. For a US citizen or green card holder, potentially yes: every non-US pooled fund, including European UCITS funds and Israeli mutual funds, is a PFIC, generally requiring Form 8621 with punitive default treatment. Raise it with a cross-border professional before selling or buying more.
Not during your first ten years. New olim and returning residents get a 10-year exemption from Israeli tax on foreign-source income, counted from the aliyah date, and foreign interest is covered. From 1 January 2026 that income is still exempt from tax but must be reported on your Israeli annual return.