Laws of Interest #03

Q: Is it permissible for me to buy bonds issued by Jewish-owned companies or the State of Israel? Can I maintain an interest-bearing account in an Israeli bank?

A: A company that issues a bond is essentially accepting a loan from the buyer; depositing money in a bank is essentially lending them money to grant mortgages and other loans. The interest they pay you would thus seem, at first glance, a violation of ribbis.

However, R' Moshe Feinstein zt"l ruled that there is no violation of ribbis when lending to a corporation, even if Jewish-owned. This is because the Jewish owners do not carry a personal lien and the liability is limited to the corporate assets. [However, even R. Feinstein zt"l does not allow an individual to borrow money from a Jewish-owned corporation, since then the borrower does carry a personal liability.] (Igros Moshe Y.D. II: 63)

Other authorities dispute this leniency, since they view the corporation simply as a partnership of the various Jewish owners or shareholders, who are considered the borrowers. Many of them acknowledge, though, that the prohibition of taking interest from a corporation is rabbinic. (Minchas Yitzchak 1:3 and 4:16) Some of them are also lenient regarding bonds of the Israeli government, which does not even have defined owners. (Har Zvi Y.D. 126)

Therefore, while it is possible to rely on the leniency or R. Feinstein zt"l, it is preferable to subject the bond or account to a heter iska (which will be discussed in future issues). Almost all Israeli financial institutions subject their transactions to a heter iska; the government of the State of Israel also subjects its bonds to a heter iska. While some authorities question the widespread usage of heter iska, one can certainly rely on it in conjunction with the other leniencies mentioned. (Bris Yehuda 7:n66; The Laws of Ribbis, R. Reisman, 5:26-27 and 12:37)