The effects of Covid-19 on the Israeli overdraft and what happens now most of the restrictions have been lifted?

The financial crisis created following the Covid-19 pandemic is one of the worst experienced in Israel in particular and the world in general.

Raheli Bindman Raheli Bindman | April 21, 2021

 

For many months, the world almost came to a standstill, in every sense. Hundreds of thousands of workers were sent on unpaid leave and others completely lost their jobs.

It can be assumed that a crisis of this magnitude will exacerbate the state of the public’s bank accounts, right?

 

In practice, the opposite phenomenon has occurred: the overdraft has become smaller.

Data from the Bank of Israel reflects that at the end of 2019, when the economy enjoyed growth and prosperity, overdrafts of Israeli citizens amounted to ILS 11.7 billion. As of the end of 2020, this amount had shrunk to ILS 8.6 billion – a decrease of 26%. Monthly data obtained during 2020 showed that although the economic crisis is deepening, the Israeli overdraft is shrinking.

 

 

How did this happen?

 

 

There are a number of explanations. First and foremost – the financial safety net provided by the state to those who lost their jobs, those sent on unpaid leave and the self-employed, which included grants and unemployment benefits, which softened the blow of losing regular income.

 

Second, and this is perhaps the main point, expenses decreased significantly. With the exception of basic products such as food, housing and bills, many expenses became irrelevant for a long time, with an emphasis on leisure and entertainment activities – restaurants, vacations, flights abroad, children's classes, swimming pools, gyms and more.

Finally, the economic crisis mainly affected a certain segment of the population: employees and the self - employed who did not enjoy employment security, and especially workers from the leisure and entertainment sectors who were almost completely closed during the closures. Workers who maintained their jobs also maintained their regular income, and on the other hand, their expenses decreased, which explains the sharp aggregate decline in the overdraft of Israeli citizens.

 

 

A negative balance, more commonly know as an overdraft, is a major issue that households in Israel face on a daily basis. According to the Central Bureau of Statistics, almost 50% of households in Israel are in the red at least once a year and one in five households is in the red permanently. Overdrafts average ILS 25,000 a month per family, and households are forced to pay interest to banks in excess of ILS 200 a month – more than ILS 2,400 a year.

The rise in the number of vaccinated, decrease in morbidity and gradual return to everyday life – to restaurants, shows, vacations, gyms and life itself – all these are excellent news, but they foretell an expected worsening overdraft for the bank accounts of households in Israel.

Many households that saved money during Covid-19 are expected to return and increase their expenses, especially nearing the summer – vacations, summer camps and the opening of the sky. Naturally, people want to go back to living and enjoying themselves and maybe even make up for the long period of confinement in their homes. This is a welcome relief to most of us, but before going back to swiping our credit cards, it is important to enter the bank website and check exactly how much our overdraft is costing us on our bank ID card.

The bank ID card is a type of printout that informs customers every year how much the bank has “cost” them over the past year. There is a chapter on the printout called ‘Credit’ and you can find the costs of your overdraft under this heading.

 

 

What should you do?

  • Enter your bank ID card on the bank website
  • Search for the Credit chapter
  • Check your credit line (the maximum overdraft amount you are permitted to reach on your account), and the interest rates on your account (banks usually divide the credit lines into tiers – a deviation of ILS 0-5,000 will cost you X% in interest, a deviation of ILS 5,000 to 10,000 will cost Y%, and so forth).
  • At this stage, use the statement to check how much you paid on your overdraft in ILS.
  • Check whether the bank charged a fee called ‘Credit Allocation’ – for the privilege of having an overdraft.
  • Call the bank and ask to increase your credit line (first tier).
  • Ask for a discount on the interest rate.
  • Request an exemption from credit allocation fees.
  • If it is a chronic and permanent overdraft, it is advisable to consult and consider cheaper financing alternatives. 
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