Pikudon / Israeli Bank Time Deposit

A Pikudon (פיקדון, plural Pikadonot) is a fixed-term bank deposit in Israel — the direct equivalent of a US Certificate of Deposit (CD). Pikadonot are offered by all major Israeli banks (Bank Hapoalim, Bank Leumi, Discount Bank, Mizrahi-Tefahot, Bank Yahav, Bank Otzar HaHayal, and others) with terms ranging from 1 day (Pikudon Yomi — daily deposit) to 10 years. Key characteristics: (1) Interest rate: fixed at the time of deposit; may be CPI-linked (Pikudon Tzמוד) or nominal (non-linked). Linked Pikadonot pay a real rate + CPI adjustment; non-linked pay a fixed nominal rate; (2) Insurance: Israeli bank deposits are insured up to ₪250,000 per depositor per bank by the Bank of Israel's deposit insurance framework. Amounts above ₪250K are not insured; (3) Liquidity penalty: early withdrawal from a Pikudon before the agreed maturity triggers a penalty — typically a reduction in the agreed interest rate, often to near zero for the full period. Pikadonot are not liquid instruments; (4) Taxation: interest income from Pikadonot is subject to 15% withholding tax (as of 2023). Linked Pikadonot are taxed on both the real interest and the inflation adjustment component; (5) Rate environment sensitivity: in Israel's low-rate environment (2011–2021), Pikudon rates were often 0.1–0.3% — below inflation. During the 2022–2023 Bank of Israel rate hiking cycle (BoI rate rose from 0.1% to 4.75%), Pikudon rates rose to 5.0–5.5% on 12-month terms, making them highly competitive with Makam (T-bills) and generating the largest Israeli retail deposit inflows in a decade; (6) Comparison to Hishtalmut/Gemel: Pikadonot lack the tax advantages of Keren Hishtalmut (employer contribution, tax-free growth) or Gemel (capital gains exemption post-60). For investors with available Hishtalmut capacity, maximizing the Hishtalmut is generally preferred before placing funds in a Pikudon.

In July 2023, with the Bank of Israel rate at 4.75%, Bank Hapoalim offered 12-month Pikadonot at 5.2% nominal. An Israeli saver with ₪200,000 available (below the ₪250K insurance limit) would earn ₪10,400 in interest, subject to 15% withholding tax (₪1,560), leaving a net ₪8,840 after tax — a real return of approximately 2.5% after the prevailing 5.4% CPI. Compared to Makam (Israeli T-bill) at 5.0% with the same tax treatment, the Pikudon offered a slight premium for locking up the capital for a fixed term without early withdrawal flexibility.