I realized by a response to my last post that while explaining how to choose a bank in Israel, I came off very critical of the Israeli banking system.  My intent was to explain that when looking for a bank in Israel one should consider (1) the workings and time of the individual branch more than the bank (2) consider the advantages and disadvantages of a personal banker, (3) pay attention to a different credit card system, (4) get the most out of online services, (5) avoid bank fees and (6) make sure you can bank in your mother tongue.

As a whole, the Israeli banking system is actually pretty good .  In fact, the service I personally receive from Bank Mercantile on Herzl St. in Petah Tikvah ranks right up there with my beloved WAMU zt”l.

Israeli banking, like banking anywhere, has its ups and downs, and I believe that some of the benefits of the Israeli system should applauded:

(1) ahead of our credit, not behind: 

In the US, a person takes a credit card and then, when payment is due, runs to decide from where he or she will repay it.  In Israel, we have a system where the consumer decides from where he or she will pay BEFORE he or she uses a credit card.  By hooking up a credit card up to a checking account, Israelis are one month ahead of their credit card bills, not one month behind, where penalties upwards of 35% await most Americans.

(2) credit card limits based on cash flow:

In Israel, we have a system whereby the limit one spends on a credit card is established based on one’s regular income.  This logical safeguard guards against excessive spending, and can help people stay within a subjectively normal limit.  Yes, one can always go to his bank, take out all his money and then charge more, but the fact that one has to go through all these steps distinguishes those who innocently wander into debt from those who are fanatically driven to it; not everyone can be helped, and it wonderful that we help those we can.

(3) credit for loans based on income, not debt:

Perhaps the stupidest measure of credit is the FICO score, the one currently used in the United States.  The FICO score rewards a constant reliance on credit and utilization of debt, whereas a logical system would look at one’s ability to repay a debt.  Israel, thankfully, has such a system.  When one takes out a loan in Israel, he or she should expect to bring tlushim and prove that he or she actually has the ability to repay the debt, not turn it into a second, third, or as many Americans do, sixteenth mortgage.

(4) the mandatory pension law:

While most countries preach against Keynesian economics, few actually resist the temptation of demand driven economics and actively encourage savings.  Israel is light years ahead of the United States not only in the understanding that the paradox of thrift is completely untrue (savings is investment, not a removal of money from the economy as Keynes saw it), but in mandating a pension system that demands that workers save their earnings to take care of themselves in the long run.  Sorry Mr. Keynes, but in the long run, we still want to retire with dignity before “we’re all dead.”

(5) Real oversight for our most important investments

While our mandatory pension system may seem limiting (although more options are on the way), the options that we have are overseen by a responsible government organization.  If you check out pensianet on a regular basis, you’ll notice that any time one of the funds has a statistic that looks out of whack, it will be highlighted in red and noted for correction.  Israel understands the importance of diversification and knows that if it allows its citizens to take the risks taken in the US, then it also faces the risk of suffering the same financial crisis.

When I made aliyah a few years ago, I was surprised at how different the banking system in Israel is from the system I was used to in the States.  Not knowing what to expect, I blindly followed my aliyah shaliah’s advice and ended up at a horrible bank from which I transferred after 2 years. 

But it’s not all bad.  My first banking experience in Israel could have been worse, and before it was, it taught me to consider a number of items when choosing a bank:

(1)  Think local

In Israel, unlike in the US, your account is tied to a local branch, so if you need to do any major transactions, you will have to go to your branch.  When I moved from Jerusalem to Petah Tikvah, I had to switch to a local branch that was not open on Fridays, forcing me to miss work any time I wanted to do any serious banking.  I later switched to a bank that was open Fridays, but closed Sundays, a much better trade-off to match my working schedule.

Also, pay attention to how busy the local branch is.  At my last bank I had to wait two hours for a single transaction because I went on a busy day. Obviously banks have busier times than others, but two hours is insane.  Next time you shop for a bank, go into the bank a few times at your convenience and see if the bank is not overly packed (or understaffed, as the case may be.)

(2)  It can get personal

Some Israeli banks insist on tying every customer to a particular banker.  While this does allow for a more personal banking experience where your personal banker knows what you need, it is also annoying to have to try to wait if your particular banker is busy or on vacation.  Personally, I hate the idea of being tied to a banker; I want to be in contact with the first available banker and get the information I need (what can I say, banking really brings out the yekke in me).

At the same time, make sure that you get the direct number for the local branch where you do your banking.  At my last bank, I had an issue where money was taken from me by mistake, and the bank even admitted it, but kept telling me to be in contact with them via the call center.  The call center was horrible; everyone kept passing me to someone else and promising to call me back with an answer.  After calling dozens of times over the course of six weeks and not getting anywhere, I closed my account and moved to a different bank.

I know what you’re saying now: “so go to a bank where you are tied to a banker!”  Well, I ended up going to a bank with the best of both worlds.  On one hand I am not tied to a banker; on the other hand, I can directly contact the manager of the bank if anything goes awry.

(3)  Credit and debit cards are not the same and it makes a difference

While the American credit card system is a travesty, the American debit card system is a model to which I hope Israel will aspire.  Back in the US, I could use my debit card to take out up to as much money as I had in my account and everything was posted instantly.  (And don’t let the rumors fool you; most debit cards have the exact same protection as credit cards.)

Israel has a different system that is kind of a cross between a debit and credit card system.  Using an Israeli credit card, you are only to spend up to a particular limit and instead of the money coming out of your account as each transaction occurs, the amount you charged each month is removed in a lump sum.  This became an issue two years ago when I had to pay for a private surgery and had to come up with a large amount of money.  The money was in my account, but the surgeon would not accept a check.  I had to choose between using a bunch of different credit cards (including my US one, which charges a large fee for international use) or taking out the money from my branch and carrying around thousands of shekels in cash, like a drug dealer.  Long story short, make sure you have a system in place with your bank to deal with this kind of issue.

(4)  Online services have a lot of potential

Most banks will allow you to monitor your account and perform simple transactions online, but some will even let you do complicated transactions as well.  This week, my wife contacted her banker via e-mail with a difficult transaction request and then he called her within a day to confirm the transaction and send over the necessary paperwork.

(5)  Banks will try to nickel and dime you

I already killed this subject in a couple of posts here and here.  My views are clear:  you should be paying minimal or no fees and you have to fight for it.  Make sure, before signing onto a new account, that you know the entire fee structure.  Also, don’t believe a banker who promises you a discount; get everything in writing.

(6)  Language matters

I was actually surprised to hear from a number of people that their bankers would not communicate with them in English, or even get another banker who could.  Most banks I have dealt with go out of their way to find bankers who speak a number of languages (in Petah Tikvah, Russian and Amharic are the main languages in demand).  Nonetheless, if a banker will not speak to you in your language, request another banker or don’t sign up for that bank; it’s not worth messing up your finances over a language issue.  (“I dind’t close ten thousand dollars in a CD, I asked you what time you’re open on Tuesdays!”)

What do you look for in a bank?  What challenges have you faced?