Your training fund is worth much more than it seems: a calculator

A training fund (Keren Hishtalmut) is one of the best benefits available to an employee in Israel. The employee deposits 2.5% of the salary, and the employer adds 7.5%. That is, for every shekel that comes from the employee, three more shekels enter from the employer. The salary ceiling for a deposit that receives the full tax benefit stands at 15,712 shekels per month. With a full deposit, about 1,571 shekels enter the fund per month, of which about 1,178 shekels are from the employer and about 393 shekels from the employee.

The great advantage lies in taxation. The profits accumulated on preferred deposits can be withdrawn with an exemption from capital gains tax when the fund meets the conditions. In a regular investment portfolio, realized profit is usually subject to a 25% tax. Over 15 or 20 years, the difference can reach tens of thousands of shekels.

Consider an employee who earns, for example, 12,000 shekels per month. 1,200 shekels enter their fund every month, of which 900 shekels are from the employer. Assuming an average annual return of 6%, for illustration, after six years about 104,000 shekels will accumulate in the fund. If the money remains in the fund and the deposits continue, after 15 years the amount reaches about 349,000 shekels. After 20 years, it is already around 554,000 shekels. The deposits themselves over the period amount to 288,000 shekels, and the balance comes from the profits generated on the money over the years.

An employee who earns at least the ceiling amount and deposits the full amount sees even larger numbers. The monthly deposit reaches about 1,571 shekels. After six years, it is about 136,000 shekels; after 15 years, about 457,000 shekels; and after 20 years, about 726,000 shekels. Out of the latter amount, about 349,000 shekels come from the return. The value of the tax exemption on profit of this magnitude approaches 90,000 shekels.

Choosing the fund and the investment track is also worth a lot of money. The fact that there is a training fund is only the beginning. Between a general track, stock track, index tracking, and other options, there are large differences in the level of risk and return, and significant gaps also arise over time between managing companies. In the Bizportal training fund ranking, you can see the returns of various entities over the last month, from the beginning of the year, and over longer ranges. Looking at three and five years is usually much more useful than an impression from a single month. Management fees are also important: a gap that seems small in percentages can turn into tens of thousands of shekels when the fund already holds hundreds of thousands of shekels.

One of the important things about a training fund is that 6 years is the liquidity date, not a target date for redemption. The money can continue to be invested even after the fund becomes liquid, and the seniority is maintained. It is also possible to move between tracks and investment managers while maintaining seniority. The ceiling is also important. Employees who earn over 15,712 shekels may receive deposits from the employer on a higher salary, depending on the employment agreement, but the part above the ceiling receives different tax treatment. Therefore, it is worth distinguishing between the deposit itself and the full benefit granted by the state.

Ultimately, a fund of 100,000–150,000 shekels at age 35 or 40 can look like an available and convenient amount to use. When it receives another 15 or 20 years of deposits and returns, it can already reach half a million shekels, 700,000 shekels, and even more. The combination of money from the employer, compound interest, and tax benefit is exactly what makes it much more than just another savings account.