2023-09-21 11:15:00
Title: Israeli Public Pulls Billions from Long-Term Savings Accounts, Where Does the Money Go?
Subtitle: Withdrawals at Double the Market Estimate, Causing Concern Among Experts
Date: [Insert Date]
The Israeli public is witnessing a significant trend as they continue to withdraw money from long-term savings accounts. Data published in Calcalist reveals that between January and July of 2023, Israelis deposited NIS 3.7 billion, while withdrawals amounted to a staggering NIS 8.2 billion. These withdrawal rates are twice as high as what was initially estimated in the market, leaving experts questioning where the money is being diverted.
One group of people driving these withdrawals are individuals facing financial pressure. Many are resorting to withdrawing funds from their provident funds to repay loans. According to Uri Ben Dov, CEO of IBI Mutual Funds, the low-interest rate era is over. With interest rates currently standing at 5%, those who took loans against their provident funds a year and a half ago are now burdened with the task of paying back substantial amounts. These loans were used to finance larger homes, luxury cars, and lavish vacations. However, with interest rates ranging from 7% to 8%, individuals are left with no option but to withdraw from their long-term savings to cover their loans.
Another group contributing to the rise in withdrawals is affluent retirees aged 60 and over. A decade ago, these retirees deposited money into their provident funds based on amendment 190 to the tax ordinance, which allowed for tax-free monthly allowances or reduced tax payments of 15% upon withdrawal. However, with more attractive alternatives available, such as bank deposits offering rates of 5% for shekel deposits and 6% for dollar deposits, retirees are opting to withdraw their funds from provident funds.
Despite the significant amount of funds being withdrawn, Ben Dov reassures that it is relatively low compared to the size of the industry. He states, “8 billion shekels out of an industry close to a trillion shekels is still trifles.” Nonetheless, this change in trend and the withdrawal rate being twice as high as anticipated is causing concern among market experts.
It is essential to highlight that withdrawing funds from a provident fund without taking advantage of the tax benefits can have severe consequences. Ben Dov emphasizes that this should only be considered as a last resort and under specific circumstances. Provident funds remain one of the most attractive saving channels in terms of tax advantages alongside training funds.
However, if the withdrawal of the provident fund is made when the funds are not liquid and involves a 35% penalty, it is strongly advised against. Ben Dov states, “It’s horrible and terrible, not to do it under any circumstances. It’s the worst thing you can do,” emphasizing the importance of avoiding the 35% penalty throughout one’s lifetime.
As the Israeli public continues to redirect their long-term savings towards other avenues, the full impact of this shift remains to be seen. Experts recommend individuals to carefully consider the consequences before making any decisions regarding their long-term savings, ensuring they weigh the benefits and drawbacks appropriately.
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