One of the fundamentals of banking is that a deposit into a bank account is like a loan to the bank. The depositor is lending the bank money, of which a large percentage of that can be used by the bank to lend to other people.
The banks take deposits, but offer no interest on a bank account with a positive balance. On the other hand, they do collect interest on credit, on loans and on bank accounts with a negative balance. Bank accounts with a negative balance, also known as overdraft, minus and being in the red, are considered as if the bank gave the account holder a loan, and they collect interest on it.
While "fair" is never really a good word to use, this situation is unfair, or perhaps unbalanced. the banks do not pay interest on the money lent to them in the form of deposits, but the bank collects interest on the money lent out by them in the form of overdraft and credit.
Yesterday, MK Avraham Michaeli (Shas) proposed a new law by which, if it were to pass, banks would have to pay interest to account holders with a positive balance.
The law has been unsuccessfully proposed in the past.
(source: The Marker)
I hope this law passes, It is absurd that we lend the banks money but get no interest, even if it would only be a little bit, while they take high interest on our overdraft.
If this passes, it will require us to relook at at our hetter iska and possibly create a need for new arrangements. Right now we have hetter iskas with the banks so they can collect interest from us. For us to collect interest from them, we might need new arrangements.
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For deposits you do get interest because there you are providing cash to the bank. A current account is a service that the bank provides you and you pay for the privilege. You make no commitment to the bank how much money you will keep in the account for how long, so the bank cannot seriously invest that money. The interest that the bank does collect on some of your money that it is keeping in cash in the safe just in case you ask for it back, should be subsidizing the banking fees you pay.
ReplyDeleteRafi (S) - you're 100% right. Even in America a checking account doesn't pay interest. In addition, I don't believe things like this should be legislated - if the banks feel the need to pay interest in order to get deposits, they will, if not, they shouldn't.
ReplyDeleteAs someone who used to work in banking in the US, I have to agree (with everyone I've ever talked to) that Israeli banks are only marginally better than mafia backed drug cartels. While I would love to see them start to offer at least marginal interest on savings and checking accounts, I know that government regulation isn't the way to go on this one. (They'll just add more fees to make up the difference). What Israel needs is credit unions. Allow CUs which have less incentive to make obscene profits, and they'll gain market share by offering lower rates. More market share for CUs equals competition, which will force the banks to start lowering rates and treating their customer like customers instead of prisoners.
ReplyDelete