This question comes up quite a lot, so I think it's time to sort it out once and for all.
Let's start by understanding what each product is:
A money market fund (Keren Kaspit) is like a "pool" of money from many investors, and it invests that money in short-term, fairly risk-free instruments. For example – bank deposits, short-term government bonds or the state's MAKAM (short-term treasury bills). These instruments, by definition, have a return that is more or less like the Bank of Israel interest rate.
Its return is roughly around the Bank of Israel interest rate. As of writing these lines, the Bank of Israel interest rate stands at 4%, and so that is also the annual return of money market funds. If the Bank of Israel interest rate falls – the return of money market funds will fall too, and vice versa.
Because of these characteristics – a money market fund is very suitable for short- and medium-term savings, because it preserves the value of our money but earns almost nothing. Management fees in a money market fund are very low and usually stand (again, as of the day of writing these lines) at around 0.07% - 0.15%.
An investment provident fund (Kupat Gemel LeHashkaa) is an investment vehicle, not a savings vehicle. There are many tracks it can be invested in, and most of them lie on the spectrum between investing in long-term bonds and investing in stocks. In bonds the risk is very low and so is the return. In stocks the risk is higher and with it, of course, comes the return.
Broadly speaking, we're usually talking, over the long term, about between 4.5% in the conservative tracks and around 9% in the stock tracks. Management fees for private individuals are usually around 0.6%.
If we really want to make money – an investment provident fund in a stock track (I personally favor an S&P500 tracker, but that is not a recommendation) – will generate a significant return over the long term.
There are other technical differences:
Taxes
Taxes In a money market fund the tax is 15% on the real gain. That is – if the fund made 4% and inflation was 3%, then we have a gain of 1%, and on that we'll pay 15% tax, which comes to 0.15% in total.
Complicated? Let's give a numerical example:
I deposited 10,000 ₪.
A year passed.
The gain was 400 ₪.
Inflation was 3%, which is like 300 ₪.
Real gain: 100 ₪.
Tax to pay: 15 ₪.
In an investment provident fund there is a 25% tax on the gain. If I withdraw it as an annuity after age 60 – there is no tax.
Deposit limit
In a money market fund: none.
In an investment provident fund: 81,000 ₪ per year (as of 2025).
Which goal is each one suited for?
Short savings horizon (up to two-three years): A money market fund.
Medium horizon (3-4 to 6-7 years): An investment provident fund in a conservative track.
Longer horizon: A stock-weighted vehicle. It can be an investment provident fund, a self-directed trading account or any other vehicle.
You need to pay attention to each person's tolerance for volatility. The more stocks there are, the more return, but also more volatility, which is a nice way of saying that every now and then there are declines.
Summary:
| Vehicle | Volatility | Return | Tax | Time horizon |
|---|---|---|---|---|
| Money market fund | Low | Low | 15% real | Short |
| Provident fund in a conservative track | Medium | Medium | 25%, unless after age 60 | Medium |
| Provident fund in a stock track | High | High | 25%, unless after age 60 | Long |