Compound interest and investing in Israel
Compound interest is growth on growth: each year's return earns a return of its own. Moneta's Invest calculator projects a lump sum and monthly deposits, takes off Israel's capital-gains tax on the real gain, and can replay the same plan against real market history.
How much ₪1,000 a month grows
| Years | Deposited | Balance at 7% | After 25% tax |
|---|---|---|---|
| 10 | ₪120,000 | ₪173,085 | ₪159,814 |
| 20 | ₪240,000 | ₪520,927 | ₪450,695 |
| 30 | ₪360,000 | ₪1,219,971 | ₪1,004,978 |
Deposits at the end of each month, 7% a year compounded monthly (7.23% effective), no inflation. Tripling the term from 10 to 30 years multiplies the balance by seven: time does far more than the amount.
Tax on investment gains in Israel
Selling securities pays 25% capital-gains tax on the real gain: what you put in is first indexed to inflation, and only the growth above that is taxed. Take ₪100,000 plus ₪2,000 a month for 20 years at 7%: the balance reaches ₪1,445,727. With no inflation the tax is ₪216,432; at 3% a year inflation, the indexed cost cuts it to ₪152,852.
Capital income above ₪721,560 in a year also pays a 5% surtax (3%, plus 2% on capital income), which usually matters only in a year with a large sale.
Fees compound too
₪1,000 a month for 20 years grows to ₪520,927 at 7%, and to ₪490,421 at 6.5%. Half a percent a year in management fees costs ₪30,506: more than two and a half years of deposits.
Savings with a tax advantage
- Study fund (keren hishtalmut): deposits on a salary of up to ₪15,712 a month grow tax-free and can be withdrawn after six years.
- Investment provident fund (kupat gemel lehashkaa): a lump-sum withdrawal pays the usual 25% on the real gain, but a monthly pension taken from 60 is tax-free.
- A regular brokerage account: no deposit ceiling and no lock-up, and 25% on the real gain when you sell.
Test the plan against history
A steady 7% is an assumption. Moneta can replay the same deposits month by month against real returns: the S&P 500, NASDAQ-100, MSCI World, the Tel Aviv 35 and others, with dividends included for the ETFs. It can also fill in the expected return from an Israeli provident fund track's 5-year average. US benchmarks are in dollars, so the shekel's moves come on top.
Frequently asked questions
What is compound interest?
Earning a return on past returns, not only on the money you put in. At 7% a year, ₪100,000 grows to ₪200,966 in ten years: it roughly doubles.
How is investment profit taxed in Israel?
25% on the real gain, after what you put in is indexed to inflation, plus a 5% surtax on capital income above ₪721,560 a year.
How much will ₪1,000 a month be worth in 30 years?
At 7% a year, ₪1,219,971 before tax and ₪1,004,978 after 25% capital-gains tax, from ₪360,000 deposited.