Nearly 2.5 million Israelis, or 39.3% of the adult population, are overdrawn in their bank accounts, according to a Bank of Israel report released at the end of 2023. The report highlights a total overdraft debt of NIS 10.7 billion ($2.9 billion)
Israeli banks permit overdrafts but charge a steep 11.64% interest rate, making it twice as costly as other types of loans and generating NIS 1.1 billion ($300,000) in annual revenue for the banks.
Although public pressure and warnings from the Bank of Israel led to a temporary reduction in overdraft interest rates, these rates returned to previous levels in July. Measures introduced by the central bank to curb public debt are set to expire in September, likely leading to increased financial strain, particularly on low-income households.
"Israel is the only OECD member that allows such debt," said Dr. Neta Yaniv, an economist at Reichman University. "In most developed countries, bank customers can only spend the money they have, with minimal opportunity to incur debt on checking accounts."
Yaniv criticized Israeli banks for encouraging customers to spend beyond their means, offering what she described as an irresponsible line of credit.
"In a well-regulated market, funds withdrawn from checking accounts would be allocated to loans, encouraging customers to spend within their limits. But when a customer can easily borrow 40,000 shekels, they become effectively captive to the bank, which undermines competition," she added.