Israeli Money Market Funds Deliver Steady Yields Amid Stable Interest Rates
Shekel money market funds maintained steady performance in October amid an unchanged 3.25% interest rate, offering investors higher net yields and superior daily liquidity compared to traditional bank deposits.
In October, the Bank of Israel maintained its benchmark interest rate at 3.25% for the second consecutive month, continuing a stable monetary environment that is directly reflected in the performance of shekel money market funds. Throughout October, these funds posted an average monthly yield of approximately 0.29%, translating to an annualized rate of roughly 3.5%, slightly above the nominal interest rate itself. Since the beginning of the year, these investment vehicles have delivered an average return of about 3.1%, while trailing 12-month returns stand at approximately 3.8%. Total assets under management in shekel money market funds have reached approximately 189 billion shekels.
Money market funds typically invest in short-term government paper, bank deposits, and high-grade corporate bonds with a maximum duration of up to 90 days. Investors enjoy high liquidity, allowing daily withdrawals on any trading day. Furthermore, fund yields adjust almost immediately to monetary policy shifts; when interest rates decline, yields follow within weeks, whereas rising rates immediately benefit investors without locking up their capital.
Performance Leaders and Laggards
Performance gaps among funds remained narrow in October, with monthly returns ranging tightly between 0.25% and 0.32%. Leading the monthly table were Yelin Lapid Kosher Money Market and Yelin Lapid Liquidity Management, both posting 0.32%. They were followed by a group of funds delivering 0.31%, including More Liquidity Management, Yelin Lapid Money Market, Ayalon Liquidity Management, and Analyst Kosher Shekel Money Market.
Year-to-date, Yelin Lapid Kosher Money Market and Meitav Jumbo Money Market share the lead, each returning about 3.4%, closely followed by Meitav Liquidity Management at 3.3%. Over the past 12 months, Meitav Jumbo Money Market led with 4.1%, though analysts note this marks its first full year since launching in late October of last year. Funds focusing exclusively on government paper rather than corporate bonds, such as Meitav Non-Corporate Shekel Money Market and Altshuler Shaham Non-Corporate Money Market, trailed slightly with 3.7% and 3.6% respectively, trading marginal yield for enhanced risk mitigation.
Selecting a Money Market Fund
Because most funds hold highly comparable short-term assets, management fees dictate the primary point of differentiation. Fees range from zero to approximately 0.25% annually. Among the most competitively priced are Dolphin Shekel Money Market and Barak Money Market charging 0% fees, Ksam Active Kosher Money Market at 0.025%, and More Liquidity Management, Migdal Savings Money Market, and Analyst Kosher Shekel Money Market at 0.04%. At the upper end, Meitav Money Market charges 0.25%.
Money Market Funds vs. Bank Deposits
Compared to traditional bank deposits offering yields of around 2.8% to 2.9% subject to a 15% nominal capital gains tax (leaving roughly 2.4% net), money market funds levy a 25% tax applied exclusively to real returns surpassing the inflation rate. Under current economic conditions, net yields on money market funds are projected to reach 2.6% to 2.7%, outperforming standard bank deposits, with their competitive edge widening alongside rising inflation.
Additionally, money market funds offer superior flexibility. Unlike fixed-term bank deposits that penalize early withdrawal, money market funds permit daily capital access without penalties while continuously dynamically adjusting yields to prevailing market rates.
