Bank Trading vs. Investment Houses: The Hidden Costs of Foreign Securities
A Calcalist analysis reveals that trading and currency conversion costs at traditional banks are up to 71% higher than at investment houses, draining hundreds of shekels from retail investor accounts.
In recent years, a growing number of young Israeli investors have been opening independent trading accounts with investment houses, while traditional bank customers transfer their existing securities portfolios. The logic is straightforward: investment houses and brokers typically offer lower purchase and sale commissions, and sometimes waivers on custody fees and related costs. Regulators are also pushing the public to compare prices. According to a past investigation published by Calcalist, the average purchase and sale commission for securities at banks stood at 0.2% of the transaction value, compared to only 0.08% at investment houses, a 2.5-fold gap. Additionally, the average minimum commission per transaction stood at 31 shekels at banks, compared to 8 shekels at investment houses, nearly a fourfold difference.
However, stock purchase commissions are only part of the story. In recent years, the desire of Israeli savers and investors to hold foreign stocks and indexes directly has grown significantly. An Israeli holding shekels who wants to buy an American stock must first buy dollars, a process that conceals an additional cost. Calcalist's review of conversion terms among stock exchange members and banks shows that the pricing methodology varies greatly between institutions, with gaps sometimes reaching dozens and even over a hundred shekels on a conversion of just 10,000 shekels.
How Investment Houses and Brokers Price Conversions
Investment houses mostly operate on a relatively simple model: they do not charge a separate "exchange fee," but instead profit from the conversion spread—the gap between the market dollar rate and the rate given to the client. For example, Excellence charges a spread of 2 agorot per dollar, "Altshuler Shaham" up to 0.7%, "Meitav" 2.1 agorot, Psagot 1.5 agorot, and IBI charges a spread of 0.7% on transactions under $15,000 and 0.5% above that amount. Translating the spreads of IBI and "Altshuler Shaham" into agorot yields between 1.5 agorot and 2.15 agorot.
Two relatively new players attempting to disrupt the market present more aggressive pricing. Interactive Israel charges a commission of only 0.002%, with a minimum of 10 shekels, meaning that for a conversion of both 10,000 and 100,000 shekels, the cost is a mere 10 shekels. Blink prices the conversion at a spread hovering around 0.5%–0.67%. However, under the immediate deposit track, which allows the client to deposit and invest outside bank operating hours, the cost rises by an additional 0.4%–0.5%.
The Hidden Costs and Complex Models at Traditional Banks
Yet the truly significant gap is revealed when comparing investment houses to traditional banks. Here, the model consists of two layers: first, the bank may charge an explicit exchange fee, and second, it sells the dollar to the client at a rate higher than the representative or market rate. That is, unlike most investment houses, the client may pay both for the conversion act itself and through the rate at which it is executed.
Calcalist's investigation reveals that the average cost of converting 10,000 shekels into dollars for the purpose of purchasing foreign securities stands at about 94 shekels at banks, compared to about 55 shekels at investment houses and trading platforms examined. In other words, bank costs are about 71% higher on average. This calculation includes the conversion spread and the explicit exchange fee, where charged, but excludes securities purchase and sale commissions.
Conversion Spreads and Additional Bank Fees
Calcalist's review shows that the spread between the continuous market dollar rate and the conversion rate offered by banks to clients seeking to buy foreign securities ranges from 0.8% to 1.2%. Since the spread changes during the trading day and is not uniform across banks, a conservative approach was adopted for comparison using a uniform conversion spread of 0.8% across all five banks examined. Thus, on a conversion of 10,000 shekels, the spread cost is estimated at 80 shekels, to which the explicit exchange fee charged by each bank must be added.
Building on these conversion gaps, explicit declared exchange fees are added. At Discount Bank, for example, the direct channel charges a fee of 0.17% with a minimum fee of $6; at Leumi 0.16% with a minimum of $5.76; and at First International Bank under the general track 0.0875% with a minimum of $5.00. On a conversion of 10,000 shekels, the combination of the rate spread and the explicit fee results in hidden costs ranging between 80 and 100 shekels per investment transaction.
The cost does not end with the purchase: when the investor sells the paper and converts the dollars back into shekels, they may pay a conversion spread and a similar exchange fee again. Consequently, the cumulative cost of entering and exiting the investment is higher, reaching up to 200 shekels for a relatively minor investment involving the purchase and sale of a stock or index worth 10,000 shekels. Thus, high activity at a bank can easily accumulate into hundreds of "hidden" shekels eating away at the account.
The Digital Challenger
It is worth noting that OneZero, the digital bank controlled by Amnon Shashua, is attempting to generate competition from within the banking system itself. Contrary to the standard banking model, it chose a structure closer to that of investment houses: no separate exchange fee, but a fixed spread of 2.5 agorot per dollar. By doing so, it seeks to simplify pricing and compete directly with brokers and investment houses for trading clients.
