Israel's Debt Crisis: High Interest Rates and Economic Strain Amid War

As Israel continues to grapple with the ongoing war, more than one-third of Israeli households find themselves in severe financial distress. Many families are spending thousands of shekels beyond their monthly income, unable to make ends meet. Rising tax rates, increased prices, and high interest rates have contributed to this growing crisis.

According to Fresh Start, an Israeli non-profit organization, about 39% of the population over the age of 18, or roughly 2.5 million households, are currently overdrawn in their bank accounts. This financial burden has been exacerbated by an alarming rise in interest rates. As of November 2024, Israeli banks were charging households with overdrafts an average interest rate of 12.7%, a steep increase from 11% at the end of 2023. Meanwhile, the average interest paid on consumer credit loans was 9%, a substantial gap when compared to the 3.5% to 4% interest banks pay on deposits.

Sharon Levin, director of communications at the Paamonim non-profit, which helps struggling households, revealed that the number of families seeking assistance has doubled since the war began in October 2023. These families are taking out additional loans to manage their debt, but high interest rates have only deepened their financial troubles. On average, families have accumulated debts between NIS 100,000 to NIS 120,000.

Before the war, rising interest rates had already caused monthly mortgage payments to increase by NIS 800 to NIS 1,200. The war has further compounded these financial challenges, with debt repayment costs rising by an additional NIS 1,500 per year for the average household.

Israel’s top banks, including Bank Hapoalim and Bank Leumi, have posted record profits in recent years, benefiting from high interest rates and inflation. However, this comes at the expense of struggling households who are now trapped in a cycle of debt, with limited support from the banks in the form of reasonable interest-bearing deposits.

Tomer Rabinowicz, the founder of Fresh Start, criticized the banks for profiting off of these high interest rates while failing to offer fair terms to deposit holders. He called for government intervention to supervise dangerous loan practices and provide support for over-indebted households and businesses, stressing the importance of financial education and guidance.