Anticipating BoI rate cut, banks cut interest on deposits

One of the clients of Israel’s big banks, who deals with money management, was surprised to discover that the interest rate he received for closing a deposit had dropped significantly within a week. He tells “Globes” that he had planned to deposit a major amount for one year, and within a week, one of the banks’ offers was cut by 0.5%. Further investigation conducted by “Globes” has revealed similar trends among the banks this past week.

Another client, at a smaller bank, who closed an annual deposit at an interest rate of almost 5% in January 2026, asked to close a new deposit for a period of one year this week, and was surprised to receive an interest rate of 3.8%. However, there is still no official data on the average interest rate in Israel’s banking system in May, and these will not be published until mid-June.

The belief is that the banks are preparing for a sharp interest rate cut by the Bank of Israel in the near future, perhaps even in the upcoming decision on May 25. The interest rate is currently 4%, after two cuts, each of 0.25% at the beginning of the year. But after the outbreak of the war with Iran, the Bank of Israel took time out to evaluate the macroeconomic situation. The consensus is that in the upcoming decision, the interest rate will be cut to 3.75%, but there are increasing voices calling on Bank of Israel Governor Prof. Amir Yaron to make an even bigger cut.

Analysts “Globes” spoke with estimate that the banks are taking preemptive action, and that some have begun to hedge in advance and cut the fixed shekel interest rate on deposits for relatively long periods of time (six months or more), so as not to be negatively affected by any unexpected rate cuts.

Midroog ratings agency VP financial institutions Moty Citrin says, “Some banks are already starting to price in interest rate cuts for the rest of the year. As we get closer to the date of the Bank of Israel’s next interest rate decision, the interest rates given for bank deposits, and also for loans, may change accordingly. This is expected to change as a result of the interest rate cut.”

The impact of the shekel and real estate

Citrin believes that “The main interest rate that has fallen (on deposits and loans) is for 6-12 months. In recent months, it has reached an 18-month low. This interest rate is ultimately influenced by the banks’ expectations.” Will the governor dramatically cut the interest rate? Citrin says, “There is pressure on the Bank of Israel exists and it has even intensified, because the annual inflation rate in the economy is currently 1.9%, in the middle of the range according to which the Bank of Israel operates.”

Israel’s real interest rate highest in the West

But on Friday the consumer price index (CPI) for April will be published, and “It is expected to be high due to the war. On the other hand, if we add the very strong shekel, which has undergone major appreciation against the basket of currencies, and a continuing slowdown in real estate (a rate cut makes it easier to take mortgages to buy an apartment). So the expectation of an interest rate cut is becoming more established in the market.”

According to Citrin, “The more the CPI surprises this week for the better and is lower than expected, or the GDP growth figure is negative and requires an interest rate cut to stabilize the economy, the greater the chance of rate cut. I do not expect a sharp reduction of 0.5%. My assessment is that it will remain the same, but I would not be surprised if there is a 0.25% cut.”

The Bank of Israel itself publishes official data on the interest rates used in banks every month. As of April, the interest rate on a deposit in the banking system for one year actually increased slightly, to 3.93%, after standing at 3.88% in March. The increase was probably due to a systemic overreaction in the previous two months, due to the outbreak of the campaign in Iran, and especially because of the belief that two consecutive rate cuts by the Bank of Israel at the beginning of the year will delay further rate cuts.

The average is a misleading figure

April data from the Bank of Israel on the five largest banks reveal that on average a customer at Leumi will receive 4.03% on a one-year deposit, at Bank Hapoalim – 4.2%, Mizrahi Tefahot – 3.59%, Discount 3.81% and First international – 3.81%. At One Zero Digital, an average interest rate of 4.6% was received.

The average is problematic, because very large customers, who deposit tens and hundreds of millions of shekels at the bank, receive the highest interest rate, and they “pull” the average figure upwards. One way to see this is through the median interest rate on deposits, which is also published by the Bank of Israel. This is lower by 0.1%-0.8% than the average interest rate at banks.

On their websites, banks publish the interest rates that can be received every day. Most customers will receive a higher interest rate, even those with relatively modest activity. And yet this interest rate is very low compared with the Bank of Israel interest rate, and ranges from 2.5% to 3% at the major banks, for a one-year fixed-rate deposit. One Zero is the exception, offering an interest rate of 3.8% on its app for a one-year deposit.

The solutions found by the public in these cases are depositing the money in a money market fund, which usually raises billions from the public, thereby maximizing its bargaining power with the bank. Therefore, last year, investors in this channel recorded a return ranging from 4.2% to 4.4%. This return is historical and included periods of higher interest rates in the economy. The governor himself predicted an interest rate of 3.5%-3.75% by the end of the first quarter of 2027.

Another way to deal with the issue is to purchase a Makam, which currently provides a gross (projected) annual return of 3.66%. “For most of the public who want to deposit their money in a bank account, there are not many alternatives but to use the app,” says Shuki Oren, chairman of One Zero Digital Bank. In this case, he adds, “They have no bargaining power, and they usually receive a low offer compared with large customers.”

“You get zero interest”

Oren notes that the bank apps “are really a scam. The average Israeli – not the customer who has NIS 20 million in the bank, and the branch manager is constantly calling him, but someone who wants to deposit NIS 100,000 in one of the big banks – gets zero interest.” “I tried to deposit such an amount in one of the big banks, and there was no quote there with an interest rate of over 0.6% for several months. Any customer who wants to work through the accepted means, they don’t pay him anything.”

Oren mentions that the Bank of Israel publishes the median interest rate data on deposits, which presents a picture of a much lower interest rate. The median interest rate, which half of the customers receive above and half below, he says, “is only slightly lower than the interest rate that the banks officially present on their websites.”

Therefore, he expresses support for the Israel Competition Authority’s move, which defined the banks as concentration groups a week ago. “The big banks are creating smoke screens and confusing the public, most of whom don’t understand and have no inclination to engage in finance.”

Published by Globes, Israel business news – en.globes.co.il – on May 14, 2026.

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