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i live in Israel, a country with a non-competitive banking system, which causes them to offer unattractive interest rate on almost every acoount (regular, savings short term deposits etc.-- short term deposit interest rate was 2.02 %, ridiculous) im looking for a way to manage my money in a more profitable way, and i thought of transferring my money to an online bank. will that help? or the conversion rate would cause more losses than the profits? what online bank would you recommend for that? also can i get a credit card in one of those banks?

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    There is no way this could be answered. You could only do so if you knew what changes in currency exchange rates were going to happen while you owned the investment. – DJClayworth Mar 17 '14 at 22:28
  • If so you just answered me. And there is no viable solution for me. But i reckon there has to be a way to do it assuming no major changes in currency rates... – davyx8 Mar 17 '14 at 22:30
  • Most countries have low official interest rates so their banks will also have correspondingly low interest rates. Putting your money in the bank is no way to grow your money profitable, you will need to take some risk for that. – Victor Mar 17 '14 at 22:39
  • You think 2% on short term deposits is bad? Try 0.2% or less - that's reality in Europe and has been in Japan for over two decades! – Michael Borgwardt Mar 17 '14 at 22:50
  • im not saying its a way to make profit, im only looking for better ways to "store" my money, so i will lose less due to comissions and inflation – davyx8 Mar 17 '14 at 22:51
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There are no "on-line" banks in Israel. There were various attempts to create something that would look like an online bank (HaYashir HaRishon comes to mind, Mizrahi did something similar recently), but that essentially is a branch of a brick and mortar bank (Leumi and Mizrahi, respectively) that allows you online management and phone service instead of walking into a branch, not a replacement for a traditional bank. Thus there are no significant operational savings for the banks through which they could have afforded higher savings rates.

I agree with the other responder that the banking system in Israel is very well regulated, but I agree with you also - it is not competitive at all.

That said, at the current inflation rate and the current strength of the currency, the 2.02% that you have is actually pretty good. Israel has no interest in paying high rates on incoming money since its currency is too strong and it hurts exports, so don't expect much at home on this issue.

Opening an account outside of Israel poses a different problem - tax reporting. You'll have to file an annual tax return and pay your taxes on the interest you earn, something most Israelis never have to do. That will cost you and will probably eat up much, if not all, of the gain. Also, currency fluctuations will hurt you, as no-one will open an account in Shekels outside of Israel and you'll have to convert back and forth. In fact, the first thing to happen when the rates in Israel go up would be for the currency to go down, so whatever you might gain abroad will disappear when you actually decide to move the money back. And you will still be taxed on the interest income (can't deduct capital loss from interest income).

Your options, as I see them, are either the stock market or the bonds market (or, more likely, a mix).

In Israel, the bonds similar to the US T-Bills (short term bonds) are called "makam" and you can either invest in them directly or through mutual funds. These are traded at TASE and can be held for free (banks are not allowed to charge you for holding them). They're taxed at lower rates than capital gains (15% vs 25%). During the times of low interest these may provide much better alternative than bank savings (pakam).

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I beg to differ: Israel has an incredibly well managed central bank, and the usury market is wonderfully competitive. It's a shame Stanley Fischer has retired. His management is the case study in central bank management.

Rates are low because inflation is low. The nominal rate is irrelevant to return because a 2% nominal return with 1% inflation is superior to a 5% nominal return with 9% inflation.

A well-funded budget is the best first step, so now a tweak is necessary: excess capital beyond budgeting should be moved quickly to internationally diversified equities after funding, discounted and adjusted, longer term budgets.

Credit will not pay the rate necessary for long term investment. Higher variance is the price to pay for higher returns.

  • haaretz.com/business/.premium-1.533606 94% is controlled by three banks, rates are all the same in all of them, and the difference between each bank is virtually non existent – davyx8 Mar 17 '14 at 22:49
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    +1 for "5% nominal return with 9% inflation". Any Fx rates for pair of currencies normally get adjusted for inflation difference. – Dheer Mar 18 '14 at 3:31
  • While the regulation is very good, and the central bank is very powerful - the competition is still almost nil. It's a very small and very centralized market. – littleadv Mar 18 '14 at 4:22
  • @davyx8 Your country has 8 million people, the whole world is coming out of a credit bust, and your mortgage rates are lower than US Treasury rates. Americans could only be so lucky! Please show me a country aside from the banking states & Japan that have better real interest rates. – user11865 Mar 18 '14 at 14:28
  • Australia. NZ. south africa. UK. – davyx8 Mar 18 '14 at 14:45

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