Guest Contributor: Gershon Kayman, Esq.
Adapting to a new country includes adjusting to that country’s banking system. Since banking is a necessary and regular part of life, it is important to have an understanding of the Israeli banking system prior to Aliyah.
Banking in Israel is different to banking in other western countries. Although Israel is a democratic country that allows its citizens to freely conduct business, it is more bureaucratic and this leads to a number of practical differences, some of which are listed below. Please note that this list is not comprehensive, but rather a basic outline of some major issues to be aware of as well as some suggestions as to how to deal with them.
1. Banks in Israel are more curious about your transactions than in other western countries
Banks in Israel are more curious about your transactions than in other western countries where banking secrecy and privacy are respected more. In addition, Israeli banks may request you provide them with your social security number if you are a U.S. citizen.
Israel for good reason needs to worry about its security. In a region where terrorism is always a threat, the funding of terrorist activities is always on Israel’s radar. If you are transferring large sums of money, it is not uncommon for a banker to ask you specifically what the purpose of your transaction is, and to decide whether or not the money is being used legitimately. Refusing to cooperate because you believe that the bank should respect your privacy can lead to the banks sending your money back overseas or refusing to process the transaction.
Israeli banks have also been pressured by the U.S. to keep records of any bank accounts held in Israel by U.S. citizens so that they can more easily identify tax evaders. Most Israeli banks now require U.S. citizens to complete an IRS W-9 or similar form, disclosing their social security number or tax ID number. The banks will know if you are a U.S. citizen from your Teudat Zehut (identity card) which identifies where you were born. If you are U.S. citizen that was born in a country other than the U.S., the bank may not make these demands of you for lack of knowledge.
This is a complicated topic of its own but due to U.S. regulations known as FBAR and 5471 reporting requirements, a U.S. citizen who directly or indirectly maintains a bank account in any country outside the U.S. or who owns an interest in a foreign corporation, is required to make an FBAR and/or 5471 filing to the IRS/Treasury Department or face a penalty of $10,000. Limitations apply if the bank account is under a certain threshold and an accountant or attorney should be consulted.
2. There are bank fees for everything.
Banks charge fees for almost every transaction made. Some fees to expect include:
- standard withdrawal fees
- fees for depositing foreign currencies
- transfer fees
- wire fees
- maintenance fees
- additional cash withdrawal fees
- check fees
You name it, the banks charge for it! It is something that you need to get used to as a day-to-day reality. Fees for cash withdrawals are usually larger after a certain threshold is reached and if you can plan ahead and withdraw cash in smaller increments you can avoid paying higher fees. In addition, when an Oleh or any newcomer opens an account, the bank generally waives or minimizes many of the fees for a specified period of time, but eventually when the grace period expires the fees are re-instituted. It is possible to ask your banker to lower your fees which they usually do for businesses, but this is done on request only and is not a given. It is a good idea to know your banker, so that you can negotiate fees and other situations that may arise down the road.
3. The credit card myth and other credit card facts to be aware of.
a. Credit Cards in Israel are Really Debit Cards
Credit cards are a standard part of financial life however, as an Oleh, you need to be aware that most credit cards issued in Israel are really debit cards. The debit will occur once a month and you can select the date that is most convenient for you from a list of several available debit dates. Generally, credit cards are issued by Israeli banks and the full outstanding balance will be automatically withdrawn/debited from your checking account once every month.
b. Expect a Low Credit Limit Initially
The actual credit that you will be granted initially may be much lower in comparison to the credit you may be used to in your country of origin. Should you need more credit at any point, over and above what may have been given to you, the merchant who you are conducting business with can call your bank’s credit card department for special permission to allow the transaction. In these cases, the bank will often agree to let the charge go through. Overdraft protection is available but must be requested from your bank.
c. Tashlumim (Payments)
A method of credit common in Israel is Tashlumim. Almost all merchants will give you the option of paying a bill over the course of several months (up to 24 months in some cases) interest free through your bank-issued credit card. A small fee may be charged by your bank for this service. Paying in Tashlumim, however, can use up your available credit which can mean that any future purchases which take you over the credit limit, will have to first be approved by the credit card company as discussed above.
d. Contesting Credit Card Charges and Advantages of Foreign Issued Credit Cards
Unlike in the U.S., unless someone charged your credit card without your authorization, it is virtually impossible to contest a credit card charge in Israel. It is advisable therefore, to not get rid of your foreign issued credit card that fast. A foreign issued MasterCard and Visa card (and sometimes American Express credit cards) are accepted in Israel by virtually all merchants.
The advantages of using a foreign issued credit card are that they offer you the true credit you are used to and more importantly, they allow you to contest charges made if a merchant does not supply you what was promised. The disadvantages are that foreign issued credit cannot be used to make a payment in Tashlumim and additionally, given that the currency used in Israel is Shekels your credit card company will need to convert the funds to pay your merchant.
Although the foreign exchange conversion rates offered by credit card companies are often very competitive and fair, most credit card companies will charge between 3-5% for the currency conversion, causing you to end up with a poor exchange rate. A suggested solution to this is that you bring to Israel a foreign issued credit card that waives or minimizes all foreign exchange transaction fees. A search on the internet can lead you in the right direction but at the time of writing this article, Capital One offers a credit card that charges customers no fees for foreign transactions.
4. Bouncing or putting a stop payment on an Israeli check and negotiating an Israeli check.
Bouncing a check in Israel has more serious ramifications than in other western countries and is really bad for your credit. At worst, it could be deemed a criminal offense and there is an expedited process available to sue someone who has bounced a check they have given you. Also, you can generally only put a stop payment on a check if you have the funds to cover it should it be cashed.
It is common and legal in Israel for Party B who has received a check from Party A to endorse the check to Party C. If so endorsed, Party C can sue the original check writer (Party A) if the check is stopped, even though Parties A and C have nothing to do with each other. In order to avoid such incidents, the following words “to the payee only not negotiable” as well as 2 parallel diagonal lines should be added to the check near the name of the recipient.
Checks written in English in Israel are perfectly valid.
5. Ikulim (bank account restraining orders).
In Israel the enforcement and collection of unpaid municipal bills is slightly more aggressive than in the U.S. Should one fail to pay municipal or government related bills such as property taxes, parking tickets, Bituach Leumi etc. a creditor has the right to place an Ikul (restraining order) on your account. In such an event, your bank account can be frozen to the extent of the sum due to the creditor. An Ikul on your account can be placed without advance notice from the court, although you most likely would have received several demands from the creditor that you may have ignored or failed to understand. The creditor will have resorted to the Ikul as a final measure. Many Olim are surprised or shocked by this process because they are accustomed to a fair hearing prior to the taking of such action.
Olim need to understand the importance of not ignoring municipal bills. Most municipalities in Israel are very accommodating if you speak to them in advance before an Ikul had been issued. They are eager to work out payment plans and may even agree to settle the bill for a lower amount.
6. Sending money overseas from Israel can be difficult. Don’t close your foreign bank account.
Sending money overseas from Israel can be difficult. Don’t close your foreign bank account.
a. International Transfers
Although it is much easier nowadays to send money overseas from Israel than it used to be, it is still difficult and generally a lengthy and time consuming process. An affidavit which states that you don’t owe any taxes on the monies being sent overseas must be completed and submitted to your bank before they will honor your request,. You may also be required to obtain a document from the tax authorities proving that you don’t owe tax on the money leaving the country.
One of the most common events is someone sending the proceeds of a property sale out of the country. In this case the lawyer will be able to provide the seller with a document called an Ishur Mas Shevach (proof of capital gains tax). The bank may require you to provide them with this document prior to sending your money out of the country. Every situation is different so consult your bank to find out what documents are required before sending the money.
On a side note, in Israel you can deposit foreign currencies in your account without converting them to Shekels (which is helpful in avoiding foreign exchange risk) however, there are significant deposit and withdrawal fees when doing so and an affidavit will be required to send foreign currencies overseas as mentioned above.
Suggestion: Maintain your foreign bank account even after you make Aliyah and sign up for online banking. Also, before you leave to Israel make sure your foreign bank account is set up for sending out wires and ACH transfers so that you will easily have access to your money. Make sure to also bring your foreign checkbook with you. Due to the difficulty in sending foreign currencies overseas it is suggested to keep your foreign currencies on deposit overseas and send the money to Israel when you need it.
Also, if your U.S. dollars remain overseas you will not have to be overly concerned with the FBAR filing requirement (see above) since you are keeping your U.S. dollars on deposit in the U.S. and not in Israel. Receiving overseas foreign money in Israel is much easier to do but may take several days to appear on deposit in your bank account. To receive transfers from overseas an IBAN (International Bank Account Number) or Mispar Zahav as it is known in Israel must be used to identify your Israeli account.
b. Domestic Transfers
Transferring money in Israel from one Israeli bank account to another is quite simple, especially if they are standard transfers, and can be done online or with a teller at the bank. Of course if you need to transfer large sums of money between accounts in Israel your bank may ask for more information (as discussed above).
Bank account identification codes/numbers are relatively simple in Israel. Each bank in Israel is assigned a 1 to 2 digit number. Each branch of a specific bank is assigned a 3 digit number and each account is designated a 5-7 digit number (although some account numbers may be longer). When you transfer money within Israel, you just need to know these three sets of numbers along with the account holder’s name .Transfers are usually available the next business day however a special IBAN transfer (for an additional fee) may be utilized for same day delivery.
7. Foreign exchange
Where is the best place to go to convert foreign currencies?
Most immigrants to Israel will have to exchange the currency of their country of origin to Shekels at some point. Where is the best place to do this? Banks, the post office and money changers all offer this service. Also a foreign issued credit card is also a good way to make purchases in Israel but beware of hefty foreign exchange fees charged by credit card companies (see above).
Aside from those located at airports or in tourist areas, money changers generally offer the best exchange rates and turnaround times for foreign exchange in Israel. It is important to shop around though since competition is fierce. It is also crucial to make sure the money changer is licensed and reputable. It is suggested that you never keep money on deposit with a money changer since most money changers are not insured and there have been cases of people who lost their life savings. Only a licensed and reputable money changer should be used to convert your currencies.
Money changers also provide you with the option of depositing or cashing foreign checks in Israel and converting your foreign currency to Shekels. Banks also offer this service however it generally takes weeks for a bank to cash a foreign check. The downside of cashing a foreign check is that the money changer charges a check cashing fee of 1-1.5 % in addition to a foreign exchange rate fee. This can be avoided if you make sure you maintain your foreign bank account whilst in Israel and are set up for online banking, wire or quick-deposit transfers (note: The foregoing may be difficult to set up once you permanently move to Israel since you will no longer have a U.S. residence address. Banks generally do not like servicing residents of other countries notwithstanding the citizenship or dual citizenship of their customers, and may even close your foreign account if you do not maintain some sort of address in your country of origin).
Wiring or transferring monies to your money changer vs. cashing a check can save you money. Of course the wire fee must be assessed in proportion to the amount of money being wired, to ultimately decide if cashing a check is more worthwhile than sending a wire. For example, If you need to convert $20,000 to shekels it may justify paying a $50 wire fee because the wire fee comes out to 1/4 of one percent, but it comes out to 20% if your wire is only for $250 in which event a check is the way to go. Inquire from your money changer if they have a bank account in the same country where your bank account is located so that you can send them a domestic wire vs. an international one.
In summary it is important to plan ahead and know what to expect when moving to Israel. You can avoid unnecessary pitfalls when navigating the banking world in Israel if you are properly prepared.
Gershon Kayman is an attorney, currency specialist and Oleh from NY. He can be contacted at firstname.lastname@example.org.