The Account Your Employer Funds for You
If you are employed in Israel, you almost certainly have access to a קרן השתלמות (Keren Hishtalmut) - literally "study fund," though that name is a historical relic. Today it functions as Israel's premier short-to-medium term savings vehicle, and it has a combination of benefits that simply does not exist anywhere else.
Here is the core deal: your employer contributes 7.5% of your gross salary into the fund every month. You contribute an additional 2.5%. The money grows in a diversified investment portfolio, and after six years you can withdraw everything - principal, employer contributions, and all investment gains - completely tax-free.
How do the contributions work?
The split is set by law for salaried employees:
- Employer: 7.5% of your gross salary (this is money the employer pays on top of your salary - it does not reduce your take-home pay)
- Employee: 2.5% of your gross salary (deducted from your gross, so it reduces your taxable income slightly)
- Total: 10% of gross monthly, every month, automatically
The contribution ceiling that qualifies for tax exemption is updated annually. For 2025, the ceiling on the employer's tax-exempt contribution is approximately 188,544 NIS per year (roughly 15,712 NIS/month in salary). Contributions on salary above that ceiling are still allowed but taxed as income.
In practice: if you earn 20,000 NIS/month, your employer puts 1,500 NIS into your Keren Hishtalmut every month, and 500 NIS is deducted from your gross salary. Over a year, that is 24,000 NIS contributed - of which 18,000 NIS came from your employer at no cost to you.
Why Tax-Free Growth Matters More Than It Sounds
Most investment accounts in Israel are subject to a 25% capital gains tax on profits. Inside a Keren Hishtalmut, all capital gains, dividends, and interest accumulate with zero tax while the money is in the fund. When you withdraw after six years, you pay no tax on any of it.
Over a decade of contributions with moderate investment returns, the tax savings alone can amount to tens of thousands of shekels. Combined with the employer match, this combination is among the most favorable savings vehicles available to Israeli salaried employees.
Knowledge Check
What makes Keren Hishtalmut unique compared to other savings vehicles in Israel?
Can the self-employed open a Keren Hishtalmut?
Self-employed individuals (osek patur or osek murshe) can also open a Keren Hishtalmut and make their own contributions. The tax rules are slightly different: you can deduct contributions up to a set percentage of your income (approximately 4.5% of income up to a ceiling), and withdrawals after six years remain tax-free. The ceiling for self-employed is lower than for salaried employees, but the account still offers excellent tax efficiency.
If you freelance or are self-employed, speak to an accountant about the optimal contribution level - the deduction rules interact with your other business expenses and Bituach Leumi contributions.
How do you choose a fund manager?
Your employer typically has a default fund manager, but you can always transfer your Keren Hishtalmut to any licensed manager. The major providers include Meitav, IBI, Menorah, Harel, Altshuler Shaham, and Phoenix. They all offer a range of investment tracks, from aggressive equity to conservative bond-heavy portfolios.
Management fees vary and have a real impact over time. We cover this in the pension fees article, but the same logic applies: a 0.3% annual fee difference on 300,000 NIS over 10 years costs you roughly 9,000-12,000 NIS in lost growth. Always compare fees before selecting or staying with a manager.
What happens if you withdraw before six years?
Before the six-year mark, the fund is "locked" for tax purposes. You can still withdraw early, but you will pay full income tax on the employer contributions and gains - losing the main benefit of the account. There is one partial exception: funds can be used for educational purposes (studies) after three years, under specific conditions. We cover the withdrawal rules in detail in the next article.
The Bottom Line
If your employer offers a Keren Hishtalmut and you are not enrolled, enroll immediately. Every month you delay is employer money you are forfeiting. If you are enrolled but have not chosen your investment track, check what you are invested in - the default is often a conservative "general track" that may not match your actual time horizon.
A Keren Hishtalmut is an Israeli savings account your employer helps fund: your employer contributes 7.5% of your gross salary each month and you add 2.5%, for a total of 10% of gross deposited automatically into a diversified investment fund. After six years from the first deposit you can withdraw the entire balance, including employer contributions and all investment gains, completely tax-free, where a regular brokerage account would owe 25% capital gains tax. For 2025 the tax-exempt ceiling is based on a qualifying salary of roughly 15,712 NIS/month (about 188,544 NIS per year); salary above that ceiling still generates contributions, but the employer's portion on the excess is treated as taxable income. You can transfer the account to any licensed fund manager (Meitav, IBI, Altshuler Shaham, Menorah, Harel, Phoenix) without restarting the six-year clock, and you should compare management fees before choosing one. If your employer offers a Keren Hishtalmut and you are not enrolled, each month of delay is employer money forfeited.
For salaried employees the split is set by law. Your employer contributes 7.5% of your gross salary on top of your pay, so it does not reduce your take-home, and you contribute an additional 2.5%, which is deducted from your gross and slightly lowers your taxable income. Together that is 10% of gross deposited every month, automatically. For example, on a 20,000 NIS monthly salary your employer puts in 1,500 NIS and 500 NIS is deducted from you, totaling 2,000 NIS a month, or 24,000 NIS a year, of which 18,000 NIS came from your employer at no cost to you.
After six years from your first deposit you can withdraw the entire balance, including principal, employer contributions, and all investment gains, completely tax-free. This is what makes the account unusual: most investment accounts in Israel pay a 25% capital gains tax on profits, but inside a Keren Hishtalmut all capital gains, dividends, and interest accumulate with zero tax, and you pay no tax on any of it at withdrawal after six years.
Before the six-year mark the fund is locked for tax purposes. You can still withdraw early, but you will pay full income tax on the employer contributions and the gains, which loses the main benefit of the account. There is one partial exception: the funds can be used for educational purposes (studies) after three years, under specific conditions.
The ceiling that qualifies for the tax exemption is updated annually and is set as a qualifying-salary cap. For 2025 that cap is roughly 15,712 NIS per month (about 188,544 NIS per year). On salary up to the cap, the employer's 7.5% contribution is tax-exempt for you; contributions tied to salary above the cap are still allowed and still go into the fund, but the employer's portion on the excess is treated as taxable income.
Yes. Self-employed individuals, whether osek patur or osek murshe, can open a Keren Hishtalmut and make their own contributions. The tax rules differ slightly: you can deduct contributions up to a set percentage of your income, approximately 4.5% of income up to a ceiling, and withdrawals after six years remain tax-free. The ceiling for the self-employed is lower than for salaried employees, but the account still offers strong tax efficiency. Because the deduction rules interact with your other business expenses and Bituach Leumi contributions, it is worth discussing the optimal contribution level with an accountant.
Yes. Your employer typically assigns a default fund manager, but you can transfer your Keren Hishtalmut to any licensed manager without restarting the six-year clock. The major providers include Meitav, IBI, Menorah, Harel, Altshuler Shaham, and Phoenix, and they all offer a range of investment tracks from aggressive equity to conservative bond-heavy portfolios. Management fees vary and matter over time: a 0.3% annual fee difference on 300,000 NIS over 10 years costs roughly 9,000 to 12,000 NIS in lost growth, so compare fees on both your accumulated balance and new deposits before choosing or staying with a manager.
For US olim, the closest equivalent is a 401(k) with an employer match, but the Keren Hishtalmut is better in two ways: the 7.5% employer match is higher than the typical US 3% to 6%, and withdrawals after six years are completely tax-free, more like a Roth IRA than a traditional 401(k) where withdrawals are taxed as ordinary income. For UK olim, there is no direct equivalent; an ISA offers tax-free growth and withdrawals but has annual caps and no employer match, while a workplace pension provides employer contributions but locks the money until retirement age. The Keren Hishtalmut combines employer funding with access after just six years, a more flexible arrangement than most countries offer.
