The Knesset approves the payment of interest on current accounts by René Taieb
On February 19, 2025, the Knesset adopted in preliminary reading a bill requiring Israeli banks to pay interest on the balances of their clients’ current accounts. This initiative aims to restore balance in the relationships between banking institutions and consumers by ensuring fair compensation for deposited funds.
**Details of the bill**
According to the proposed text, the Governor of the Bank of Israel will be responsible for setting the minimum interest rate applicable to deposits in current accounts. This decision will be made in collaboration with the advisory council of the central bank and will require the approval of the Minister of Finance. Notably, no deputy opposed the vote, reflecting a broad political consensus on the necessity of this reform.
**Genesis of the initiative**
The bill was initiated by Deputy Inon Azoulay from the Shas party, who had initially planned to submit it in the summer of 2023. However, at the request of Prime Minister Benjamin Netanyahu, and due to the reservations expressed by the Governor of the Bank of Israel, Professor Amir Yaron, regarding possible regulatory interference in banking affairs, Azoulay had temporarily withdrawn his proposal.
Despite these reservations, the issue of remunerating deposits in current accounts has remained at the center of public debates. In June 2023, Professor Yaron had written to the bank directors, urging them to voluntarily introduce interest on these balances. He had warned them that in the absence of initiative on their part, the legislator could intervene to impose this measure. Nearly two years later, faced with the inaction of the banks, the Knesset decided to legislate.
Arguments in favor of the law
Supporters of this project emphasize that banks make considerable profits by using the funds deposited in current accounts, without benefiting the clients. Deputy Azoulay stated: « There is no more legitimate law than this one in the banking sector. » The banks are profiting from high interest rates at our expense. Current accounts total an enormous sum of 235 billion shekels, but the banks are not willing to share these profits.
According to the data, during the first nine months of the previous year, the banks recorded 22.9 billion shekels in profits, largely due to the non-remunerated funds in current accounts. In June 2023, the total amount of deposits in these accounts stood at 430 billion shekels. However, due to the expenses related to conflicts and economic challenges, this amount has almost halved in 15 months.
**Reactions of financial institutions**
The Bank of Israel has expressed reservations about state intervention in setting interest rates, believing that it could harm the autonomy of financial institutions and the banking regulator. Professor Yaron particularly criticized the provision requiring coordination with the Ministry of Finance to establish the minimum rate, seeing it as an interference in the prerogatives of the Bank of Israel.
**A breakthrough for Israeli consumers**
The preliminary adoption of this bill is a significant step towards greater financial justice for the clients of Israeli banks. By requiring banking institutions to remunerate current account balances, the Knesset is responding to a growing demand for transparency and fairness in the financial sector. This reform could strengthen public confidence in the banking system and encourage more responsible management of deposited funds. It remains to be seen how banks will adapt to this new regulation and what impact it will have on the national economy in the long term.
René Taieb Journalist for Israel Actualités Digital
