What Is the Prime Rate?

In principle, every commercial bank in Israel sets its own prime rate, based on the Bank of Israel interest rate plus a margin that reflects, among other things, its operating costs.

In practice, all the banks in Israel use the same margin: the prime rate equals the Bank of Israel rate plus 1.5%.

Why does it matter to us?

Many mortgages in Israel are taken at an interest rate linked to prime, and when the Bank of Israel rate changes, the prime rate changes accordingly.

For example, if the Bank of Israel rate is 4%, the prime rate will be 5.5%. A client who got a mortgage at prime minus 0.5% will actually pay 5% interest. You can find the current Bank of Israel rate on the Bank of Israel website.

When is the prime rate updated?

Unless there are economic events that call for immediate intervention, the Bank of Israel announces its interest rate roughly once every month and a half. The prime rate is set based on that rate and takes effect three business days later.

What should you do when you see a change in the prime rate?

The prime rate affects only loans linked to the prime rate. When the market expects interest rates to rise, customers generally prefer to take fixed-rate loans and to make deposits based on the prime rate. Conversely, when rates are expected to fall, customers prefer prime-rate loans and fixed-rate deposits.