Mad Hon · Emergency fund

Decide where your emergency fund actually sits

Decide where your emergency fund actually sits. A step-by-step Mad Hon guide for your Emergency fund score, written for olim.

1. Know what you are choosing between.
Placing a buffer is not investing it. Three things have to hold at once: you can reach the money inside a day or two, its value does not move with a market, and it is not sitting at nothing by default. Most buffers in Israel fail the third test rather than the first two, because the money never left the current account it arrived in.
2. Israel has no deposit insurance scheme. Say that one again.
The FDIC in the United States, the FSCS in Britain, the CDIC in Canada and the Financial Claims Scheme in Australia all guarantee bank deposits up to a statutory ceiling. Israel has no counterpart: no scheme, no statute, no ceiling and no fund. What exists is an implicit expectation that the state would step in, which the Bank of Israel itself describes as implicit rather than legislated, and which history supports without promising anything. Two things follow. Splitting money between banks to stay under a limit is a habit imported from a system that does not operate here. And any Israeli marketing that calls a deposit "insured" or "guaranteed" is describing something that has no legal existence, which is worth noticing about the party saying it.
3. Learn the four shapes the money can take.
A current account balance is instant and usually earns nothing, though several banks now pay something on a balance. A bank savings account or a fixed-term deposit, a pikadon, pays more and locks the money for a defined period. A pikadon yomi, an overnight deposit, renews daily and stays available. A keren kaspit, a money-market fund, is not a bank product at all: it is a mutual fund under the Joint Investment Trust Law, supervised by the Israel Securities Authority, holding short-term government bills, short bonds and short deposits, and it is redeemable on any business day rather than instantly. Those are four different trade-offs between reach and return, and the first job is to know which one your money is in today.
4. Notice that the two are taxed on different things.
Interest on an ordinary unlinked shekel deposit is taxed on the whole nominal amount, inflation included. A gain on a money-market fund is taxed only on the part above inflation, the same way an investment gain is. In a year when prices move, those are materially different after-tax outcomes on the same headline figure, and the headline figure is the only one anybody quotes. Confirm the current rates for each with the Tax Authority before you decide anything on this basis, because the rates are set in the Ordinance and are not the sort of thing to take from a comparison site.
5. Ask when you can have it back, in writing.
This is where an attractive quoted rate turns out to be conditional. A fixed-term deposit is often sold with exit points, tachanot yetzia, at set dates, and taking the money outside one can cost you the interest earned rather than a fee you can price in advance. Ask two questions and get the answers in writing: on which dates can I take this out, and what exactly do I lose if I take it out between them. The Bank of Israel publishes a comparison of deposit interest across banks, which is a useful reference precisely because the branch will quote you one number and it is negotiable.
6. Treat it as a split, not a single choice.
The useful question is not which product wins. It is how much of your buffer has to settle the same day and how much can wait a business day, and that is a question about your own life: whether you have a car that could fail, a lease that could end, family who could need a flight booked tonight. Work out the same-day portion first, then decide about the rest. Both parts are still the emergency fund.
7. Decide the currency deliberately rather than inheriting it.
The emergencies this money answers are priced in shekels, so a buffer held in the currency you arrived with carries an exchange-rate risk against the bills it exists to pay. Keeping some abroad can still be reasonable while you have obligations there or an unfinished move. The point is that leaving it where it happens to be is a decision too, and it is the one nobody writes down.

Decide where your emergency fund actually sits. A step-by-step Mad Hon guide for your Emergency fund score, written for olim.

1. Know what you are choosing between.

Placing a buffer is not investing it. Three things have to hold at once: you can reach the money inside a day or two, its value does not move with a market, and it is not sitting at nothing by default. Most buffers in Israel fail the third test rather than the first two, because the money never left the current account it arrived in.

2. Israel has no deposit insurance scheme. Say that one again.

The FDIC in the United States, the FSCS in Britain, the CDIC in Canada and the Financial Claims Scheme in Australia all guarantee bank deposits up to a statutory ceiling. Israel has no counterpart: no scheme, no statute, no ceiling and no fund. What exists is an implicit expectation that the state would step in, which the Bank of Israel itself describes as implicit rather than legislated, and which history supports without promising anything. Two things follow. Splitting money between banks to stay under a limit is a habit imported from a system that does not operate here. And any Israeli marketing that calls a deposit "insured" or "guaranteed" is describing something that has no legal existence, which is worth noticing about the party saying it.

3. Learn the four shapes the money can take.

A current account balance is instant and usually earns nothing, though several banks now pay something on a balance. A bank savings account or a fixed-term deposit, a pikadon, pays more and locks the money for a defined period. A pikadon yomi, an overnight deposit, renews daily and stays available. A keren kaspit, a money-market fund, is not a bank product at all: it is a mutual fund under the Joint Investment Trust Law, supervised by the Israel Securities Authority, holding short-term government bills, short bonds and short deposits, and it is redeemable on any business day rather than instantly. Those are four different trade-offs between reach and return, and the first job is to know which one your money is in today.

4. Notice that the two are taxed on different things.

Interest on an ordinary unlinked shekel deposit is taxed on the whole nominal amount, inflation included. A gain on a money-market fund is taxed only on the part above inflation, the same way an investment gain is. In a year when prices move, those are materially different after-tax outcomes on the same headline figure, and the headline figure is the only one anybody quotes. Confirm the current rates for each with the Tax Authority before you decide anything on this basis, because the rates are set in the Ordinance and are not the sort of thing to take from a comparison site.

5. Ask when you can have it back, in writing.

This is where an attractive quoted rate turns out to be conditional. A fixed-term deposit is often sold with exit points, tachanot yetzia, at set dates, and taking the money outside one can cost you the interest earned rather than a fee you can price in advance. Ask two questions and get the answers in writing: on which dates can I take this out, and what exactly do I lose if I take it out between them. The Bank of Israel publishes a comparison of deposit interest across banks, which is a useful reference precisely because the branch will quote you one number and it is negotiable.

6. Treat it as a split, not a single choice.

The useful question is not which product wins. It is how much of your buffer has to settle the same day and how much can wait a business day, and that is a question about your own life: whether you have a car that could fail, a lease that could end, family who could need a flight booked tonight. Work out the same-day portion first, then decide about the rest. Both parts are still the emergency fund.

7. Decide the currency deliberately rather than inheriting it.

The emergencies this money answers are priced in shekels, so a buffer held in the currency you arrived with carries an exchange-rate risk against the bills it exists to pay. Keeping some abroad can still be reasonable while you have obligations there or an unfinished move. The point is that leaving it where it happens to be is a decision too, and it is the one nobody writes down.