Child Savings Plan
How it works
Understanding the Government's Child Savings Plan
Bituach Leumi – ביטוח לאומי – National Insurance, deposits 55 NIS (originally 50) each month on behalf of every Israeli child under 18. The funds are automatically invested into a specific track chosen by the parents. There are two main types of accounts for parents to choose from:
- A Kupat Gemel – קופת גמל – also known as a provident fund, managed by one of Israel’s major investment houses.
- A Cheshbon Chisachon BeBank – חשבון חיסכון בבנק – bank savings account held at any Israeli bank.
Each account type offers different sub-tracks for you to choose from. While you can switch between the different sub-tracks and investment managers, you cannot switch from a Kupat Gemel to a bank account or from a bank account to a Kupat Gemel.
When the child turns 18, they will receive an additional deposit of 500 shekel and are able to withdraw the money with parental consent. If the child refrains from withdrawing the funds until the age of 21, they will receive an additional 500 shekel and can then withdraw the funds without parental consent at any time. Up until the age of 21, all investment management fees are paid by Bituach Leumi.
How do I choose a track for my child?
Parents have 6 months from the date of birth to choose a track for their newborn child. Here is the link in Hebrew for choosing a track.
If you do not choose a track, your child’s funds will automatically be deposited to:
Whichever track and account you chose for your previous child.
If this is your first child or you didn’t choose previously, the default Kupat Gemel will be chosen at one of the investment houses. Currently, the default track is the “high risk” track. In previous years, the default track was set to be the “low risk” track.
Remember, once you are placed in a Kupat Gemel, you cannot switch to a bank account. Don’t forget to make your selection and consider the options carefully before choosing!
I just made Aliyah, now what?
If you have children under 18, they will be automatically enrolled in this program. You have 180 days from the date of Aliyah to choose a track for your children or they will be placed in the default track as described above.
Where can I find information about my child's account?
Here is the link, in Hebrew, provided by Bituach Leumi where you can quickly get information about your children’s accounts. Input the Teudat Zehut (תעודת זהות) Israeli ID number of the parent who is getting the monthly child allowance (the default is the mother ). This tool will provide 3 important pieces of information:
- Shem Kupat HaGemel/Bank – שם קופת הגמל/בנק – Where the money is being held (the name of the financial institution.)
- Maslul – מסלול – What investment or bank track the funds are in
- סה”כ הפקדות ביטוח לאומי כולל מענקים – The total that has been deposited into the account by Bituach Leumi.
To get more detailed information or make changes to the investment/bank track, you will need to go directly to the specific bank or investment house listed in the “שם קופת הגמל/בנק” field.
Should you increase the amount deposited each month?
Should you increase the amount deposited each month? All parents in Israel receive a monthly stipend from Bituach Leumi ranging from about 160-200 NIS per child – depending on how many children you have. You are entitled to reduce your stipend by 57 shekel each month per child and add that amount to the child’s savings account instead. This can be a very simple way to invest more on behalf of your children and take greater advantage of this fee-free investment account.
Question: Can a parent make voluntary contributions to the Kupat Gemel for children, aside from reducing the Bituach Leumi stipend? Or is the extra amount limited to 57 NIS per month, per child and only from the Bituach Leumi stipend?
Answer: Unfortunately not. That extra amount is limited to the deduction from the Kitzba. No additional contributions may be made to this account.
Understanding the investment tracks
While there are certainly different opinions on this issue, using the bank option is generally recommended for Americans, while using the Kupat Gemel is generally recommended for everyone else. Let’s discuss what tracks are available for each category.
What tracks are available within the bank option?
The bank savings account is offered by most Israeli banks and is generally divided into 3-sub
tracks for you to choose from:
- Fixed interest rate (מסלול עם ריבית קבועה לא צמודה) – This track will have an interest rate that does not change for the duration of deposit. Keep in mind that this means the interest rate will not be adjusted if inflation or interest rates increase as they have recently. This might be the best option if you expect inflation to go down and stay low in the near future.
- Interest rate that adjusts based on the inflation index (מסלול עם ריבית קבועה צמודה למדד המחירים לצרכן) – This track is designed to protect the saver against future inflation and would likely have a higher interest rate than the first track in times of high inflation. In times of low inflation, the interest rate offered by this track would be very low. This might be the best option if you expect inflation to continue to rise.
- Variable interest rate track (מסלול עם ריבית משתנה) – The interest rate of this track adjusts periodically based on the Prime Rate and offers some protection against inflation. This might be the best option if you expect interest rates to continue to rise.
Banks will generally allow you to choose the tracks above with “exit points” (תוכנית הפקדה עם אפשרות של תחנות יציאה כל 5 שנים) – where you can switch from one bank track after 5 years and move to another bank track. This allows you more flexibility to switch tracks based on economic conditions. There is no definitive way to predict which bank track will prove to be more profitable – your guess is as good as mine.
What tracks are available within the Kupat Gemel option?
While none of us can predict the future and returns are not guaranteed, the general idea here is that the higher the risk the greater the potential reward. In other words, the trade-off for accepting more short-term risk and volatility is the expectation of higher investment profits in the long-run.
A Kupat Gemel is offered by many Israeli investment companies and there are 4 relevant-sub tracks for you to choose from:
High-risk track – 75% or more in stocks.
Medium-risk track – 30-40% in stocks with the rest in bonds.
Low-risk track – 10-15% in stocks with the rest in bonds.
Halachic track – funds supervised by Rabbinic authorities such as the Edah HaChareidis.
See here a comparison of all the different Kupat Gemel options in Hebrew. Take note that when it comes to actively managed funds, the past 5 years rarely looks like the next 5 years. You should not choose a fund solely based on who is “winning” today.
For those looking for a passive index fund, there is currently only one option which tracks the S&P 500:
חוסכים המעדיפים סיכון מוגבר 11311– offered by the Phoenix Insurance Company. All the other options are actively managed funds.
How can I make changes to my children’s accounts?
To pick the investment track for your newborn child, you must choose a track within 6 months of the birth of your child or within 180 days of Aliyah.
Making changes to an existing account is more complicated. You will need to first gain online access to the specific financial institution where the account is being held. You should receive annual reports every February or March with more specific information about each account. As mentioned above, you can get the basic information about your child’s account at any time via Bituach Leumi.
This article was adapted and translated by Shivat Zion. To see the original by Blue & White Finance, click here.