Thursday, June 20, 2013

Paradigm Shifts for Americans Banking in Israel


In April of 2012, I wrote a popular post about banking in Israel. It was based on tidbits I picked up over time and some advice from other olim. There's a lot of good info there, and I encourage you to read that post too.

I'm returning to the topic because tonight, courtesy of MATI, Israel's small business service center, I heard a lecture all about banking in Israel. The lecture was given by former banker and Financial Consultant Rifka Lebowitz. Rifka's first language is English, so she was able to clearly communicate things that many olim stumble upon and maybe, eventually, if they're lucky, figure out.

If you're new in Israel, or on your way here, the best advice I can give you is to forget all your assumptions about how banks work. There are certain paradigm shifts you need to make in order to understand the banking system here.

Paradigm Shift #1: FEES - Israeli banks think of themselves as service providers. Each service they provide has a fee attached to it. As an example, just as you pay for each can of peas you buy in a grocery store, so you pay for each transaction that occurs in your account. Transaction fees range from 1.35 NIS up to 2.90 NIS/transaction. Teller transactions cost more - from 5.50 NIS to 6.80 NIS.

There are fees for everything you do inside your account.

Once you've established a relationship with a banker (something Rifka highly recommends), you can negotiate these and other fees but you cannot eliminate them. There's no such thing as free checking in Israel. Kacha Ze.

Postscript: After this post was published, a few people mentioned that members of the Israeli teachers' union (and perhaps other unions) can get very significant reductions in bank fees.

Paradigm Shift #2: BRANCHES - The Bank of Israel is the government's regulatory bank. Beneath them are five main banking groups - Bank Leumi, Discount Bank, First International Bank, Bank HaPoalim and Mizrachi-Tefachot. There are some private banks that operate outside this system, but these are the major players.

You have to think of each branch operating like an independent franchise. Most transactions cannot be handled at another branch of the same banking group. When you establish your account at one particular branch, that becomes your bank. Bank branches are not interchangeable in Israel. Kacha Ze.

Paradigm Shift #3: PASSING CHECKS - In Israel, third-party checks are a kind of black market currency. Let's say you wrote a check for 500 NIS to the woman who runs the local preschool. Even if you made the check out to her specifically, she can use that check just like cash to buy groceries. And the owner of the grocery can use it to pay his mechanic. And so on. Your original check can be used like cash, circulating all over Israel for up to 6 months, before anyone actually attempts to cash or deposit it. Kacha Ze.

There are ways to avoid this happening to your check. You can get your checks pre-printed with two parallel black lines (called "cross") and the words l'mutav bilvad inside. This is a signal to the bank that the check cannot be transferred to a third party (or a 4th or a 12th).


You can draw the lines and write l'mutav bilvad on your checks. But the best protection is to have the cross and l'mutav bilvad printed on your checks from the very beginning

Paradigm Shift #4: ACCOUNT STRUCTURE - In Israel, each account has different sub-accounts. So you have one main account which might include sub-accounts for savings, checking, investments, etc. This one is not so hard to accept, but it is important to understand if you come from the US where each account has its own account number.

Paradigm Shift #5: KNOW YOUR BANKER - Bankers in Israel have a lot of discretion and it's important to have a good working relationship with one. Unless you're fluent in Hebrew, find an English speaking banker and make sure he or she knows you. Your banker can make a lot of things happen to your benefit - letting a check through when you have insufficient funds, raising your credit/debit card limit, extending overdraft, reducing fees, etc. Israel is the Middle East. Knowing your banker is your protexia (Israeli protection) for getting anything even slightly out-of-the-ordinary done at the bank. The good news is that decisions are not made by some anonymous bureaucrat who doesn't know you, but by a banker in your local branch who actually does. 

Paradigm Shift #6: CREDIT RATING - There is no national credit rating system in Israel. But your bank is keeping tabs on you, assessing your banking behavior and your general responsibility with handling your account. You'll be assigned an internal rating according to the bank's algorithm (which you'll never officially know about). Kacha Ze.

Paradigm Shift #7: CREDIT CARDS ARE REALLY DEBIT CARDSYou have a monthly credit limit and you can charge up to that limit. At the end of the billing period, the entire balance is deducted from your account. There is no such thing as making a minimum payment and thereby accumulating credit card debt. 
 
Further, if you're really new in Israel and have no financial resources to speak of, you might be issued a direct card, which means that each transaction will be debited from your account (with a fee for each one) as you incur them. Kacha Ze.

I wish someone would have explained all this to me when I first arrived. It's not rocket science, but it does require you to make a few paradigm shifts.

Just remember Dorothy. You're not in Kansas anymore.







26 comments:

Marion Rosen said...

Note that the debit/direct card fees are charged once per day, not per transaction. So if you use the card 5 times in one day you'll pay one "direct" transaction fee, but if you use it once a day for five days you'll be charged five times.

hashgachapratit said...

I actually understood all this before I came on aliyah -- but only because I did a ton of research and asked a zillion questions on all the lists in which I participate.

I would, however, like to make a suggestion: if you are not planning to use your Israeli bank account a heck of a lot, if you are in a position in which the bulk of your income is in USD, or if you FIND that you are not using your Israeli bank account as much as you might have anticipated, you might consider opening a bank account with the post office. Here in Israel there is such a thing and it is called a Doar Bank Account. The fees are far less than at traditional banks. You can access your account online. It is a convenient banking service, albeit without the investment or savings options available at traditional banks. But if you are using it ONLY for bill paying, then this might be the way to go.

Safranit said...

The fees statement isn't so accurate. At Bank Yahav, we don't pay fees as long as we have a certain amount coming into the account in a direct deposit. It used to be that they were just for gov't employees, but they are opening up

kalman said...

1) Whats wrong with the teacher pasing on your check. As long as the service was provided to your satisfation. The problem is only if you paid for something in advance and the check went to someone else before you got it
2) Banks in "the old country" also make a living. They have a different way to do it , but at the end of the day they take your money one way or another

Anonymous said...

I would not recommend bank hadoar... it can be a nightmare if you ever want to do anything (like take out your money). You have to go through the regular post office clerks...

The new thing is express branches, and they have long hours - something novel in Israel..

also, by default most credit cards are not good outside Israel...it's worth asking about one that is also good outside so you can use it when you travel and so you can order items online outside of Israel.

Ester said...

Bank Yahav offers free checking, as long as you have a salary direct deposited. Our banker was ok with a salary being deposited by check every month as well. No fees for the usual transactions! Free checks, free ATM transactions, free debit card transactions (although there is a small monthly fee for the debit card).
Yahav is the way to go - it is open to everyone now!

Michael Levitt said...

I wish I had realised all this at the start of our aliyah. I only discovered it, gradually, with experience. I am from the UK and can confirm that there is nothing in the article that does not apply to our experience in exactly the same was as for Americans. Certainly a paradigm shift. One thing I would say, although the lack of credit on a so-called credit card here may be a personal inconvenience, its ready availability in the UK has certainly made the economic situation there very problematic. maybe its part of the reason Israel has weathered the storm so comparatively well!

Ben Green said...

I'd add a few comments.

1. Regarding checks being passed around like cash...this works in Israel because checks are prima facie treated like cash in that if it bounces, you don't need to sue the check writer in court. You can take it directly to the enforcement authority / Bailiff's office (hotsa'a lapoel) and they will make the check writer's life very unpleasant without due process quite quickly.

2. Regarding credit cards...Really they are charge card/credit card hybrids. They act like the traditional AMEX cards in the US...full balance will be due once per month on the date you set with your bank..but

a. most retailers offer payments (tashlumim) that let you charge in payments that typically vary from 4-12 months (with some special purchases like cell phones offering payments up to 36 months)

b.) the credit card issuers themselves can take a monthly balance and split if for you. For example, I bought a big item from the US (they bill 1 payment of course) on my card, then I called Isracard up. They offered to divide my balance up to 18 payments)

These are available up to your mees'geret (framework / credit limit)

Obviously on both options, you get to pay lots of interest but your bank rep/manager will be happy to consolidate your credit card bills into a standard loan with a better rate in many case...I think normal credit card APR is ~12%. If you get one from a bank consolidated...8% is typical and 5% is a really good deal.

Tehillah said...

Great article Rivkah! However, I do have something to add:

At Bank Leumi it IS possible to carry a balance on your Leumi Card from month-to-month after you've established good banking habits and have been approved.

We have a credit limit on our card - the same as we do with Capital One. Our limit is approximately 5 times our maximum monthly payment (which we set based on our budget) and they automatically deduct that monthly payment from our checking account.

For example: Let's say my limit is NIS 25,000 with a maximum monthly payment of NIS 5,000 (per card) and we have 2 cards on that account. In January I accumulate NIS 6500 on my card and my husband NIS 2200. In February, on the date we have determined to be most convenient for us (e.g., 10th of each month), they pull a payment of NIS 7200 from our Bank Leumi checking account and carry forward NIS 1500 on my card + interest.

VAUTOUR110 said...

After being a BoA Customer for so many years and having enjoyed the formidable web it has and the courtesy and culture of its personnel, I have resented the Israeli Banking System from Day-1. A few years ago, I had read that the Bank of India had opened a branch in Israel. Immediately upon reading that, I wrote to the BoA and implored them to open up in Israel and infuse its good US business culture into Israeli business. I am sure that were the BoA to open up in Israel, all Israeli banks would have to learn Good business or risk closure!

Anonymous said...

Apologies if someone already mentioned this... but as I understand it, you can also tell the person at the check-out of the store you are making the purchase at how many "payments" you want to make the purchase in. This is automatically transmitted to your bank account and the payments show up in a list which you can check per month on your bank account online and see what your overall payment that month is... and the following months. I understand that this can be adjusted to pay payments early as well.

Jacques Rajchgod said...

Superb article !!!!
I learned a lot from it as I myself had a few questions smack in the matter,
that no one in Israel could or would - have known to present or answer like you
did!!

I have already forwarded the link to appropriate parties of interest. Many
Todot...and Yashri Koach!!

Michael said...

There are (at least) two ways to arrange for someone to take regular payments from your account: from your credit card, or from your main account (called hora'at Keva).

As noted in your article, every transaction with your main account, eg horaat keva attracts a fee. But you only pay a single fee once a month for the credit card, regardless of the number of transactions.

So you'll save over the year if you set up the payments through the credit card, rather than through your account.

Anonymous said...

Good post for newbies. Nobody mentioned that Bank of Jerusalem offers a totally free checking account. Free checks, free debit card, no fees at all. Worth looking into. I just switched and couldn't be happier.

AM said...

Don't forget the ATM slips that show your balance as it was BEFORE the withdrawal you just made

yaaale said...

We get no fees at Igud also

David said...

There is some very important information that you neglected to mention about the legal implications of passing checks. If you do not include the “l’mutav b’lavad”, you cannot legally stop payment on a check that has been passed to a third party. If, for example, you make a purchase with multiple post-dated checks, and the supplier does not deliver, you will still be legally obligated to fulfill payments to third parties who eventually receive the checks. If you include the check restriction, you can cancel the checks, and resolution of the issue will be like any other commercial dispute.

David Kaplan said...

I agree with Safranit. We don't pay a thing either. Ovdei Medina (and Bank Discount and Yahav) don't pay. Also as Safranit says if you're earning over a certain amount (coming in to the account each month) you won't pay a penny. Also certain companies have deals with banks and you sometimes have zero fee deals. We've do our banking through Mizrahi Tefachot - no fees.

Shua Cohen said...

I am planning aliyah for next summer (2014) as a retiree and will soon sign up with Nefesh b'Nefesh...so my research for aliyah begins now. With regard to banking...well I just don't get it! Unless someone can tell my why this won't work, here is my plan:

1) Keep my good ole USA Capital One Visa card. Capital One charges no foreign transactions fees and the inter-bank exchange rate (NIS to dollars) is the best. Then every possible purchase in Israel is made with my American Visa card... from supermarkets to gas stations, from the internet provider to the car insurance company (no different from what I do now). I continue to pay the monthly credit card bill on-line from my U.S. checking account (also, no different from what I do now)...which leads to the next item:

2) I keep my local New York HSBC checking and savings accounts intact (my monthly pension and social security checks are already direct-deposited into my HSBC checking account) so that the vast majority of my funds remain in the U.S.

3) Presently, I hardly ever use cash. My credit card rules the day...and I ALWAYS pay the balance in full each month. As I mentioned above, I plan to continue using my U.S. credit card for almost EVERYTHING that I can in Israel, and withdraw whatever ready cash I need (don't want to bother with a credit card for a slice of pizza or a litre of milk) from my American bank account through an Israeli ATM.

3. Whatever cannot be paid for with my Capital One credit card in Israel -- my daughter's tuition, the rent (I don't imagine to many bills would fall into this category) -- gets paid from an Israeli bank account by either check, or when required by horat keva. Each month I transfer only the money that I need to pay these few bills into the Israeli account by wire from my local HSBC branch or using the services of IsraTransfer.

Bottom line...no need for an Israeli credit/debit card, no need for dangerous overdrafts, few transaction fees incurred for using an Israeli bank...in other words, I'd have as little to do with the Israeli banking system as possible.

Good plan...yes? no? maybe?

Shua Cohen (NYC)

Anonymous said...

Hello I'm starting Aliyah from Israel. I am paid weekly freelance checks from a company in NYC.

My question is, what is the easiest way to put funds into an account in Israel? by wire or having an account that has a branch in NYC?

For paying items like rent and having a local credit card is it wiser to have a local currency account or dollar account? What is the least expensive conversion cost?

If I am being paid in dollars and want to start saving in Israel is setting up a dollar account the best option to avoid conversion fees?

Again can branches of banks here accept deposit checks in NYC for direct deposit into an Israeli account and are there large fees on that?

Thank you!!!

Anonymous said...

Hello I'm starting Aliyah from Israel. I am paid weekly freelance checks from a company in NYC.

My question is, what is the easiest way to put funds into an account in Israel? by wire or having an account that has a branch in NYC?

For paying items like rent and having a local credit card is it wiser to have a local currency account or dollar account? What is the least expensive conversion cost?

If I am being paid in dollars and want to start saving in Israel is setting up a dollar account the best option to avoid conversion fees?

Again can branches of banks here accept deposit checks in NYC for direct deposit into an Israeli account and are there large fees on that?

Thank you!!!

Bat Aliyah said...

Dear Anonymous,

I'm hoping you'll see this response as I have no way to connect with you outside of this comment section.

If you're on facebook, I strongly urge you to join the Living Financially Smarter in Israel Facebook group.

In the interim, I'll answer your questions as best I can, but I am not an expert. You'll want to pursue this further.

My question is, what is the easiest way to put funds into an account in Israel? by wire or having an account that has a branch in NYC?

IF IT'S A LARGE AMOUNT, I DEAL WITH A FOREX COMPANY AND WIRE IT FROM OUR US BANK ACCOUNT. FOR SMALLER AMOUNTS, I CASH A US CHECK HERE IN ISRAEL.

For paying items like rent and having a local credit card is it wiser to have a local currency account or dollar account? What is the least expensive conversion cost?

A DOLLAR ACCOUNT HERE IS USELESS FOR BUYING ANYTHING SINCE THE CURRENCY HERE IS SHEKEL. YOU CAN'T PAY RENT WITH DOLLARS UNLESS YOUR LANDLORD IS AN AMERICAN. AFAIK, THE ONLY OTHER REASON TO HAVE A DOLLAR ACCOUNT IS TO HOLD DOLLARS TEMPORARILY UNTIL THE EXCHANGE RATE IS FAVORABLE. IF THERE'S ANOTHER REASON, I DON'T KNOW WHAT IT WOULD BE.

If I am being paid in dollars and want to start saving in Israel is setting up a dollar account the best option to avoid conversion fees?

IT SEEMS SO, BUT THERE WILL STILL BE SOME FEES TO DEPOSIT MONEY IN YOUR ISRAELI BANK ACCOUNT.

Again can branches of banks here accept deposit checks in NYC for direct deposit into an Israeli account and are there large fees on that?

YOU'D HAVE TO ASK AT THE BRANCH, BUT MY UNDERSTANDING IS THAT NO NYC BRANCH OF AN ISRAELI BANK ALLOW YOU TO DO BUSINESS AT ANOTHER BRANCH IN ISRAEL. IN FACT, MANY TRANSACTIONS ARE LIMITED TO YOUR BRANCH IN ISRAEL AND CAN'T BE DONE IN ANOTHER CITY, LET ALONE ANOTHER COUNTRY. ISRAELIS BANKS ARE VERY BRANCH ORIENTED.

VAUTOUR110 said...

Shua Cohen is dead-on correct: Do the very least amount of bus in Israel using your Israeli CC, and do it instead - as much as possible - with your US one. Only use the Israeli CC (or cash, as Shua says) for businesses or places which do not accept foreign cards such as some local gas stations and some local hardware stores, or for very small purchases that shouldn't warrant the use of a CC. NBN (forgot the link) espouses this policy too. I'll search for that NBN link and post it here...

VAUTOUR110 said...

Bat Aliyah is dead-on correct on her subject "A DOLLAR ACCOUNT HERE IS USELESS FOR BUYING ANYTHING SINCE THE CURRENCY HERE IS SHEKEL. YOU CAN'T PAY RENT WITH DOLLARS UNLESS YOUR LANDLORD IS AN AMERICAN. AFAIK, THE ONLY OTHER REASON TO HAVE A DOLLAR ACCOUNT IS TO HOLD DOLLARS TEMPORARILY UNTIL THE EXCHANGE RATE IS FAVORABLE. IF THERE'S ANOTHER REASON, I DON'T KNOW WHAT IT WOULD BE..."
How long should I wait to see whether the USD is strong enough to convert? 2,3 years? Perhaps if I wait 100 years - then my chances for a good conversion (USD-ILS) would be better? I want to live now - not wait 100 years for a good convert!
A USD account in Israel is useless unless you are a business person who flies to the US every week/month on bus and needs small USD cash for quick activities (taxi, hotel tip...) but for significant expenses, such bus person can use his/her US CC on his/her US account!

VAUTOUR110 said...

Here is the link where NBN suggests keeping one's US accounts open and doing bus using US CC's:

http://www.nbn.org.il/aliyahpedia/getting-started-planning-aliyah/financial-planning/banking-in-israel/a-guide-to-navigating-the-israeli-banking-system-some-practical-tips/

In Particular, read ITEM "6"!

Anonymous said...

I'm writing in response to Shua Cohen (after adding my cheers to Bat Aliyah for the well-organized helpful column).

The system you've worked out is almost exactly what I do, and it has so far (bli ayin ha'ra) worked very well for me. I pay for almost everything with my Capital One credit card. I keep another credit card also for the occasional time when my Cap One card is misplaced, or blocked because I forgot to tell them I was traveling.

I have a postal bank account for paying bills that don't accept foreign credit cards; there are a few like that. I have checks associated with the P.O. account; they cost little and I only use about a dozen a year.

My employment is online for overseas clients, paid overseas in a third currency (not NIS or USD). I have a mortgage denominated in that currency so I don't have to worry about fluctuations.

I get most of the NIS cash that I use through my Capital One bank card; I watch the forex rate and when the dollar is strong I try to withdraw the limit every day (usually around NIS 2,000) to build up enough to tide me over till the next time the dollar gets strong. So far it seems to me it tends to get stronger in the winter and fade in the summer. I live in an urban area so there are bank machines nearby.

So as you suggested I get by having very little to do with Israeli banks (except because of the mortgage) and paying very few fees.

Wishing you a smooth and joyous klita!
Yehudit Chana