Money market fund or bank deposit
A shekel money market fund (keren kaspit) and a bank deposit often pay similar rates, but they are taxed differently. A deposit pays 15% of all its interest. A fund pays 25%, but only on the gain above inflation. Which one leaves you more depends on inflation.
How each one is taxed
- Unlinked shekel deposit: 15% of the nominal interest, including the part that only keeps up with inflation. The bank withholds it.
- CPI-linked deposit: 25% of the real interest, above the linkage.
- Money market fund: 25% of the real gain, paid when you redeem. If prices fell over the period, the nominal gain is what is taxed.
When the fund leaves you more
| Inflation | Taxable gain in the fund | Tax in the fund | Left in the fund | Left in the deposit |
|---|---|---|---|---|
| 1% | ₪2,500 | ₪625 | ₪2,875 | ₪2,975 |
| 1.4% | ₪2,100 | ₪525 | ₪2,975 | ₪2,975 |
| 2.5% | ₪1,000 | ₪250 | ₪3,250 | ₪2,975 |
₪100,000 for one year at 3.5% in both, before tax and with the fund's fee already taken off: ₪3,500 of interest. The deposit pays ₪525 whatever inflation does and leaves ₪2,975. Over one year, the two taxes are equal when the rate is 2.5 times inflation. Below that the fund leaves more, above it the deposit does. Over several years compounding moves that point, so run your own numbers.
What else differs
- Rate: a fixed-rate deposit tells you its rate up front. A fund's yield moves with the Bank of Israel rate, so compare what it returns after its management fee.
- Access: a fund can be redeemed on any trading day. A deposit is locked for its term, and breaking it early usually costs interest.
- Risk: a fund holds short-term government paper and similar debt, and its price can dip slightly. A deposit is a claim on the bank.
- Timing: the fund's tax waits until you redeem, so that money keeps earning in the meantime.
Run your own numbers
In Moneta's Invest calculator, enter your amount, rate and years. For the fund, turn Adjust for inflation on and leave CG tax at 25%. For the deposit, turn it off and set CG tax to 15%. Then compare the two after-tax figures.
Frequently asked questions
Is a money market fund better than a bank deposit?
Over a one-year term at the same rate, the fund leaves more after tax when the rate is below 2.5 times inflation, and the deposit leaves more above that. Over longer terms that point moves. Compare the fund's return after its fee.
How is a money market fund taxed in Israel?
25% of the real gain, the part above inflation, when you redeem.
How is interest on a bank deposit taxed?
15% of the nominal interest on an unlinked shekel deposit, and 25% of the real interest on a CPI-linked one.