REGISTRATION STATEMENT NO. 333-_____
                             Filed April 4, 1997

                     SECURITIES AND EXCHANGE COMMISSION
                          Washington, D.C.  20549

                                 FORM S-8
                          REGISTRATION STATEMENT
                                  UNDER
                        THE SECURITIES ACT OF 1933

                          INTERWEST BANCORP, INC.
            ------------------------------------------------------
            (Exact name of registrant as specified in its charter)

        Washington                                   91-1691216
--------------------------------                -------------------      
(State or other jurisdiction of                 (I.R.S. Employer
incorporation or organization)                  Identification No.)

                            275 S.E. Pioneer Way
                        Oak Harbor, Washington  98277
                              (360) 679-4181
                   ----------------------------------------
                   (Address of principal executive offices)

                         InterWest Bancorp, Inc.
            1996 Outside Directors Stock Options-for-Fees Plan
            ---------------------------------------------------
                          (Full title of the Plan)

        Stephen M. Walden                  Copies to:
        President and Chief                Eric S. Kracov, Esquire
         Executive Officer                 Breyer & Aguggia
        InterWest Bancorp, Inc.            1300 I Street, N.W.
        275 S.E. Pioneer Way               Suite 470 East
        Oak Harbor, Washington 98277       Washington, D.C.  20005
        (360) 679-4181                     (202) 737-7900
        -----------------------------
        Name, address and telephone
        number of agent for service

                              Page 1 of 7 Pages
                    Index to Exhibits Appears on Page 4.

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                       Calculation of Registration Fee
------------------------------------------------------------------------------ 
Title of 
Securities     Amount       Proposed Maximum   Proposed Maximum     Amount of
 to be         to be        Offering Price        Aggregate       Registration
Registered   Registered     Per Share(1)       Offering Price(1)       Fee
------------------------------------------------------------------------------
Common Stock,
$.20 par
value         25,000(2)       $30.50           $762,500              $232
------------------------------------------------------------------------------
(1)   Estimated solely for the purpose of calculating the amount of the        
      registration fee.  Pursuant to Rule 457(c) under the Securities Act of   
      1933, as amended, (the "Securities Act"), the price per share is         
      estimated to be $30.50 based upon the average of the high and low        
      trading prices of the common stock, $.20 par value per share ("Common    
      Stock") of Interwest Bancorp, Inc. (the "Registrant"), as reported on    
      the Nasdaq Stock Market on April 2, 1997.

(2)   25,000 shares are being registered for issuance under the InterWest      
      Bancorp, Inc. 1996 Outside Directors Stock Options-for-Fees Plan         
      ("Plan"); together with an indeterminate number of shares reserved for   
      issuance pursuant to the Plan as a result of any future stock split,     
      stock dividend or similar adjustment of the outstanding Common Stock.

                             --------------------

         This Registration Statement shall become effective automatically upon
the date of filing in accordance with Section 8(a) of the Securities Act of
1933, as amended, and 17 C.F.R. Section 230.462.

                                    -2-
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<PAGE>
                                   PART II

             INFORMATION REQUIRED IN THE REGISTRATION STATEMENT

Item 3.  Incorporation of Certain Documents by Reference
------
         The following documents filed with the Commission are incorporated in
this Registration Statement by reference:

         (1)    The Registrant's Annual Report on Form 10-K (File No. 0-26632)
for the year ended September 30, 1996;

         (2)    The description of the Common Stock contained in the
Registrant's Joint Proxy Statement/Prospectus dated May 6, 1996 and filed as
part of the Registrant's Registration Statement on Form S-4 (File No.
333-2452), dated March 15, 1996 and amended April 29, 1996; and

         (3)    All other reports filed by the Registrant pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act")
since the end of the fiscal year covered by the Annual Report referred to in
(1) above.

         All other reports filed by the Registrant pursuant to Section 13(a)
or 15(d) of the Exchange Act, after the date of and prior to the filing of a
post-effective amendment which indicates that all securities offered hereby
have been sold or which deregisters all securities covered hereby then
remaining unsold, shall also be deemed to be incorporated by reference in this
Registration Statement and to be a part hereof commencing on the respective
dates on which such documents are filed.

         Any statement contained in this Registration Statement, or in a
document incorporated or deemed to be incorporated by reference herein, shall
be deemed to be modified or superseded for purposes of this Registration
Statement to the extent that a statement contained herein, or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein, modifies or supersedes such statement.  Any such statement
so modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Registration Statement.

Item 4.  Description of Securities
------
         Not Applicable

Item 5.  Interests of Named Experts and Counsel
------
         Not Applicable

Item 6.  Indemnification of Directors and Officers
------
         Section 23B.08.510 of the Revised Code of Washington sets forth
circumstances under which a corporation may indemnify an individual.

         Article IX of Registrant's Articles of Incorporation provides for
indemnification of the directors of the Registrant for monetary damages for
conduct as a director, except for liability of the director for acts or
omissions that involve: (i) intentional misconduct by the director; (ii) a
knowing violation of law by the director; (iii) conduct violating Section
23B.08.310 of the Revised Code of Washington; or (iv) any transaction from
which the director will personally receive a benefit in money, property or
services to which the director is not legally entitled.

                                    -3-
PAGE
<PAGE>
Item 7.  Exemption From Registration Claimed
------
         Not Applicable

Item 8.  Exhibits
------
         The following exhibits are filed with or incorporated by reference
into this Registration Statement on Form S-8:

         No.                            Exhibit
         ---                            -------
                        
          5                 Opinion of Breyer & Aguggia

         23.1               Consent of Ernst & Young LLP

         23.2               Consent of Deloitte & Touche LLP

         23.3               Consent of Deloitte & Touche LLP

         23.4               Consent of KPMG Peat Marwick LLP

         23.5               Consent of Breyer & Aguggia (see Exhibit 5)

         24                 Power of attorney (see signature pages)

         99.1               1996 Outside Directors Stock Options-for-Fees Plan

Item 9.  Undertakings
------
         The undersigned Registrant hereby undertakes:

         1.     To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement (i) to include
any prospectus required by Section 10(a)(3) of the Securities Act, (ii)  to
reflect in the prospectus any facts or events arising after the effective date
of the Registration Statement (or most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental
change in the information set forth in the Registration Statement, and (iii)
to include any material information with respect to the  plan of distribution
not previously disclosed in the Registration Statement or any material change
in such information in the Registration Statement; provided, however, that
clauses (i) and (ii) do not apply if the information required to be included
in a post-effective amendment by those clauses is contained in periodic
reports filed by the Registrant pursuant to Section 13 or Section 15(d) of the
Exchange Act that are incorporated by reference in the Registration Statement.

         2.     That, for the purposes of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed the initial bona fide
offering thereof.

         3.     To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.

         4.     That, for the purposes of determining any liability under the
Securities Act, each filing of the Registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Exchange Act that is incorporated by
reference in the Registration Statement shall be deemed to a new registration
statement relating to the securities offered therein, and that offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.

         5.     Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officer and controlling
persons of the registrant pursuant to the foregoing provisions or otherwise,
the Registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act
and
                                    -4-
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is, therefore, unenforceable.  In the event that a claim for indemnification
against liabilities (other than the payment by the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the questions whether such indemnification by it is
against public policy expressed in the Securities Act will and will be
governed by the final adjudication of such issue.

                                    -5-
<PAGE>
<PAGE>
                                   SIGNATURES

        Pursuant to the requirements of the Securities Act of 1933, InterWest
Bancorp, Inc. certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-8 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned thereunto
duly authorized, in the City of Oak Harbor, and State of Washington the 31st
day of March 1997.

                                    INTERWEST BANCORP, INC.

                                    By: /s/ Stephen M. Walden
                                        ------------------------------
                                        Stephen M. Walden
                                        President and Chief Executive Officer
                                        (Principal Executive Officer)

                          POWER OF ATTORNEY

        Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.  Each person whose signature appears
below hereby makes, constitutes and appoints Stephen M. Walden his true and
lawful attorney, with full power to sign for such person and in such person's
name and capacity indicated below, and with full power of substitution any and
all amendments to this Registration Statement, hereby ratifying and confirming
such person's signature as it may be signed by said attorney to any and all
amendments.

By: /s/ Stephen M. Walden                     Date:  March 31, 1997
    --------------------------------------
    Stephen M. Walden
    President and Chief Executive Officer
    (Principal Executive Officer)

By: /s/ H. Glenn Mouw                         Date:  March 31, 1997
    --------------------------------------
    H. Glenn Mouw
    Executive Vice President and Chief
    Financial Officer
    (Principal Financial Officer)

By: /s/ Carla Tucker                          Date:  March 31, 1997
    --------------------------------------
    Carla Tucker
    Vice President and Controller
    (Principal Accounting Officer)

By: /s/ Barney R. Beeksma                     Date:  March 31, 1997
    --------------------------------------
    Barney R. Beeksma
    Chairman of the Board of Directors

                                    -6-
<PAGE>
<PAGE>
By: /s/ Jean Gorton                           Date:  March 31, 1997
    --------------------------------------
    Jean Gorton
    Director

By: /s/ Michael T. Crawford                   Date:  March 31, 1997
    --------------------------------------
    Michael T. Crawford
    Director

By:                                           Date:  March __, 1997
    --------------------------------------
    Larry Carlson
    Director

By: /s/ Clark H. Mock                         Date:  March 31, 1997
    --------------------------------------
    Clark H. Mock
    Director

By:  /s/ Vern Sims                            Date:  March 31, 1997
     -------------------------------------
    Vern Sims
    Director

By: /s/ C. Stephen Lewis                      Date:  March 31, 1997
    --------------------------------------
    C. Stephen Lewis
    Director

By: /s/ Russel E. Olson                       Date:  March 31, 1997
    --------------------------------------
    Russel E. Olson
    Director

By: /s/ Henry Koetje                          Date:  March 31, 1997
    --------------------------------------
    Henry Koetje
    Director

By: /s/ Gary M. Bolyard                       Date:  March 31, 1997
    --------------------------------------
    Gary M. Bolyard
    Director

                                    -7-
<PAGE>
<PAGE>
                                   Exhibit 5

                           Opinion of Breyer & Aguggia

<PAGE>
<PAGE>
                            April 2, 1997



Board of Directors
InterWest Bancorp, Inc.
275 S.E. Pioneer Way
Oak Harbor, Washington  98277

Gentlemen:
        
        We have acted as special counsel to InterWest Bancorp, Inc., a
Washington corporation (the "Corporation"), in connection with the preparation
and filing with the Securities and Exchange Commission pursuant to the
Securities Act of 1933, as amended, of a Registration Statement on Form S-8
(the "Registration Statement"), relating to the registration of up to 25,000
shares of Corporation common stock, $.20 par value per share ("Common Stock"),
to be issued pursuant to the Corporation's 1996 Outside Directors Stock
Options-for-Fees Plan (the "Plan") upon the exercise of stock options ("Option
Rights").  The Registration Statement also registers an undeterminable number
of additional shares which may be necessary under the Plan to adjust the
number of shares reserved for issuance as the result of a stock split, stock
dividend or similar adjustment of the outstanding Common Stock of the
Corporation.  We have been requested by the Corporation to furnish an opinion
to be included as an exhibit to the Registration Statement.

        We have reviewed the Registration Statement, the Articles of
Incorporation and Bylaws of the Corporation, the Plan, a specimen stock
certificate evidencing the Common Stock of the Corporation and such other
corporate records and documents as we have deemed appropriate for the purpose
of rendering this opinion.  We are relying upon the originals, or copies
certified or otherwise identified to our satisfaction, of the corporate
records of the Corporation and such other instruments, certificates and
representations of public officials, officers and representatives of the
Corporation as we have deemed appropriate or relevant as a basis for the
opinion set forth below.  In addition, we have assumed, without independent
verification, the genuineness of all signatures and the authenticity of all
documents furnished to us and the conformity in all respects of copies to
originals.

<PAGE>
<PAGE>
Board of Director
April 2, 1997
Page 2

        For purposes of this opinion, we have also assumed that (i) the shares
of Common Stock issuable pursuant to Option Rights granted under the terms of
the Plan will continue to be validly authorized on the dates the Common Stock
is issued pursuant to the Option Rights; (ii) on the dates the Option Rights
are exercised, the Option Rights granted under the terms of the Plan will
constitute valid, legal and binding obligations of the Corporation and will
(subject to applicable bankruptcy, moratorium, insolvency, reorganization and
other laws and legal principles affecting the enforceability of creditors'
rights generally) be enforceable as to the Corporation in accordance with
their terms; (iii) no change occurs in applicable law or the pertinent facts;
and (iv) the provisions of "blue sky" and other securities laws as may be
applicable have been complied with to the extent required.

        Based upon the foregoing, and subject to the qualifications and
assumptions set forth herein, we are of the opinion as of the date hereof that
the shares of Common Stock to be issued pursuant to the Plan, when issued and
sold pursuant to and in accordance with the Registration Statement and the
Plan and upon receipt of the consideration required thereby, will be legally
issued, fully paid and non-assessable shares of Common Stock of the
Corporation.

        We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.

                                   Sincerely,

                                   /s/ Breyer & Aguggia

                                   BREYER & AGUGGIA

<PAGE>
<PAGE>
                                   Exhibit 23.1

                            Consent of Ernst & Young LLP

<PAGE>
<PAGE>

Consent of Independent Auditors

We consent to the incorporation by reference in the Registration Statement on
Form S-8 dated April 4, 1997 pertaining to the InterWest Bancorp, Inc. 1996
Outside Directors Stock Options-for-Fees Plan of our report dated November 7,
1996 with respect to the consolidated financial statements of InterWest
Bancorp, Inc. incorporated by reference in its Annual Report on Form 10-K for
the year ended September 30, 1996, filed with the Securities and Exchange
Commission.

/s/ Ernst & Young

Seattle, Washington
April 2, 1997


<PAGE>
<PAGE>
                                   Exhibit 23.2

                            Consent of Deloitte & Touche LLP
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' CONSENT

Board of Directors
Interwest Bancorp, Inc.
Oak Harbor, Washington

We consent to the incorporation by reference in the Registration Statement of
Interwest Bancorp, Inc. on Form S-8 of our report dated October 28, 1994, for
Interwest Savings Bank and subsidiaries, appearing in the Annual Report on
Form 10-K of Interwest Bancorp, Inc. for the year ended September 30, 1996.

/s/ Deloitte & Touche

April 2, 1997
Seattle, Washington

<PAGE>
<PAGE>
                                   Exhibit 23.3

                        Consent of Deloitte & Touche LLP
<PAGE>
<PAGE>

INDEPENDENT AUDITORS' CONSENT

Board of Directors
Interwest Bancorp, Inc.
Oak Harbor, Washington

We consent to the incorporation by reference in the Registration Statement of
Interwest Bancorp, Inc. on Form S-8 of our report dated January 19, 1996, for
Central Bancorporation and subsidiaries, appearing in the Annual Report on
Form 10-K of Interwest Bancorp, Inc. for the year ended September 30, 1996.

/s/ Deloitte & Touche

April 2, 1997
Seattle, Washington

<PAGE>
<PAGE>
                                   Exhibit 23.4

                           Consent of KPMG Peat Marwick LLP
<PAGE>
<PAGE>
KPMG Peat Marwick LLP
3100 Two Union Square
601 Union Street
Seattle, WA  98101-2327

                         CONSENT OF INDEPENDENT
                      CERTIFIED PUBLIC ACCOUNTANTS
------------------------------------------------------------------------------

The Board of Directors
InterWest Bancorp, Inc.:

We consent to incorporation by reference in the registration statement Form S-
8, related to the InterWest Bancorp, Inc. 1996 Outside Directors Stock
Options-for-Fees Plan, of our report dated January 20, 1995, relating to the
Central Bancorporation and subsidiary consolidated statement of operations for
the year ended December 31, 1994 which report appears in the September 30,
1996 Annual Report on Form 10-K of InterWest Bancorp, Inc.

/s/ KPMG Peat Marwick

Seattle, Washington
April 2, 1997


<PAGE>
<PAGE>
                                   Exhibit 23.5

                      Consent of Breyer & Aguggia (see Exhibit 5)
<PAGE>
<PAGE>
                                   Exhibit 24

                       Power of Attorney (see signature page)
<PAGE>
<PAGE>
                                   Exhibit 99.1

                  1996 Outside Directors Stock Options-for-Fees Plan
<PAGE>
<PAGE>
                         InterWest Bancorp, Inc.

            1996 Outside Directors Stock Options-for-Fees Plan


1.      Purpose of Plan.  The purpose of the Plan is to provide non-employee
directors of the Corporation with an increased incentive to make significant
and extraordinary contributions to the long-term performance and growth of the
Corporation and its Affiliates, to join the interests of non-employee
directors with the interests of the stockholders of the Corporation, and to
facilitate attracting and retaining non-employee directors of exceptional
ability.

2.      Definitions.  As used herein, the following definitions shall apply:

        "Affiliate" shall mean any corporation in which the Corporation owns,
directly or indirectly, stock possessing more than fifty percent of the
combined voting power of all classes of stock.

        "Board of Directors" shall mean the board of directors of the
Corporation.

        "Committee" shall mean a committee of the Board of Directors
designated by the Board to administer the Plan.

        "Common Stock" shall mean the common stock, $.20 par value per share,
of the Corporation.

        "Corporation" shall mean InterWest Bancorp, Inc., a Washington
corporation, or any successor thereof.

        "Director Notice" shall mean a written notice setting forth the
Participant's election under Section 4(b) of the Plan and delivered by a
Participant to the Corporation prior to the first day of the calendar year, to
be effective for such year or years as are specified in such notice.  A
Director Notice shall be irrevocable for the current calendar year but may be
modified by a Participant with respect to a future year(s).

        "Fair Market Value" shall mean, as of any date, the closing price of
the Corporation's Common Stock on the Nasdaq National Market System.  If the
Common Stock is not traded on a national securities exchange or quoted on the
Nasdaq Stock Market, and there are not at least two brokerage companies
reporting a bid price per share on the Option Grant Date, then the Fair Market
Value shall be that value determined in good faith by the Committee in such
manner as it deems appropriate.

        "Nonqualified Option" shall mean an option to purchase Common Stock
which meets the requirements set forth in the Plan but does not meet the
definition of an incentive stock option set forth in Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code").

        "Option Grant Date" shall mean the first business day of each calendar
year following the effective date of the Plan.

        "Option Price" shall mean the price at which a Nonqualified Option may
be exercised which shall be the Fair Market Value on the Option Grant Date of
such Nonqualified Option.

        "Participant" shall mean a member of the Board of Directors who is not
an employee of the Corporation or an Affiliate.

        "Plan" shall mean this InterWest Bancorp, Inc. 1996 Outside Directors
Stock Options-for-Fees Plan.

<PAGE>
<PAGE>
        "Total Director Fees" shall mean, with respect to any calendar year,
$8,000, as the retainer fee payable to an outside Director for service on the
Board of Directors of the Corporation.

3.      Administration.  The Plan shall be administered by the Committee. 
Subject to the provisions of the Plan, the Committee is authorized to
interpret the Plan, to promulgate, amend and rescind rules and regulations
relating to the Plan and to make all other determinations necessary or
advisable for its administration.  Interpretation and construction of any
provision of the Plan by the Committee shall be final and conclusive.  Acts
approved by a majority of the members present at any meeting at which a quorum
is present, or acts unanimously approved in writing by the Committee, shall be
the acts of the Committee.

4.      Annual Grants.

        (a)     Each Participant shall deliver a Director Notice to the
Corporation on or before the date specified in the Plan.  During the term of
this Plan, on the first business day of each calendar year following the
effective date of the Plan, each Participant shall receive a Nonqualified
Option to the extent of the Participant's election in his or her Director
Notice in effect for such year.  The option exercise price for each such
Nonqualified Option shall be the Option Price.  If, with respect to any
calendar year, a Director Notice is not received from a Participant, the
Participant's Total Director Fees shall be payable in cash.

        (b)     Each Participant may specify one of the following elections in
a Director Notice:

                (i)     Option 1.   Receive Total Director Fees in cash,       
                        payable quarterly;

                (ii)    Option 2.   Receive a Nonqualified Option covering two 
                        hundred fifty (250) shares of Common Stock and         
                        one-half of Total Director Fees in cash, payable       
                        quarterly, or

                (iii)   Option 3.   Receive a Nonqualified Option covering     
                        five hundred (500) shares of Common Stock.
 
5.      Vesting.  Each Nonqualified Option issued pursuant to this Plan shall
be conditioned on the Participant continuing to serve as a member of the Board
for a period of one (1) year following the Option Grant Date.  The
Nonqualified Option may not be exercised during said one (1) year period.  If
a Participant ceases to be a member of the Board prior to the expiration of
the one (1) year period, all unexercisable Nonqualified Options held by the
Participant shall be cancelled as of the Participant's last day of service.

6.      Indemnification of Committee Members.  In addition to such other
rights of indemnification as they may have, the members of the Committee shall
be indemnified by the Corporation against the reasonable expenses, including
attorneys' fees, actually and necessarily incurred in connection with the
defense of any action, suit or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan or any option
granted hereunder, and against all amounts paid by them in settlement thereof
(provided such settlement is approved by independent legal counsel selected by
the Corporation) or paid by them in satisfaction of a judgment in any such
action, suit or

                                    -2-
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proceeding, except in relation to matters as to which it shall be adjudged in
such action, suit or proceeding that such Committee member has acted in bad
faith; provided, however, that within sixty (60) days after receipt of notice
of institution of any such action, suit or proceeding a Committee member shall
offer the Corporation in writing the opportunity, at its own cost, to handle
and defend the same.

7.      Maximum Number of Shares Subject to Plan.  The maximum number of
shares with respect to which stock options may be granted under the Plan shall
be 25,000 shares in the aggregate of Common Stock of the Corporation, which
may consist in whole or in part of the authorized and unissued or reacquired
Common Stock of the Corporation.  If a stock option expires or terminates for
any reason without having been fully exercised, the number of shares with
respect to which the stock option was not exercised at the time of its
expiration or termination shall again become available for the grant of stock
options under the Plan, unless the Plan shall have been terminated.

        The number of shares subject to each outstanding stock option, the
option price with respect to outstanding stock options, and the aggregate
number of shares remaining available under the Plan shall be subject to such
adjustment as the Committee, in its discretion, deems appropriate to reflect
such events as stock dividends, stock splits, recapitalization, mergers,
consolidations or reorganizations of or by the Corporation; provided, however,
that no fractional shares shall be issued pursuant to the Plan, no rights may
be granted under the Plan with respect to fractional shares, and any
fractional shares resulting from such adjustments shall be eliminated from any
outstanding stock option.

8.      Written Agreement.  Each stock option shall be evidenced by a written
agreement and shall contain such provisions as may be approved by the
Committee.  Such agreements shall constitute binding contracts between the
Corporation and the Participant, and every Participant, upon acceptance of
such agreement, shall be bound by the terms and restrictions of the Plan and
of such agreement.  The terms of each such agreement shall be in accordance
with the Plan, but the agreements may include such additional provisions and
restrictions determined by the Committee, provided that such additional
provisions and restrictions are not inconsistent with the terms of the Plan.

9.      Payment of Stock Option Price.  To exercise in whole or in part any
stock option granted hereunder, payment of the option price in full in cash
shall be made by the Participant for all shares so purchased.  No Participant
shall have any of the rights of a stockholder of the Corporation under any
stock option until the actual issuance of shares to said Participant, and
prior to such issuance no adjustment shall be made for dividends,
distributions or other rights in respect of such shares, except as provided in
Paragraph 7.

10.     Exercise of Stock Options.  A Participant may exercise a stock option,
in whole or in part, by delivery to the Corporation of written notice of the
exercise, in such form as the Committee may prescribe, accompanied by (i) full
payment for the shares with respect to which the stock option is exercised, in
cash, or (ii) in the sole discretion of the Committee, irrevocable
instructions to a stock broker to promptly deliver to the Corporation full
payment for the shares with respect to which the stock option is exercised
from the proceeds of the stock broker's sale of or loan against the shares. 
Successive stock options may be granted to the same Participant, whether or
not the stock option(s) previously granted to such Participant remain
unexercised.  A Participant may exercise a stock option, if then exercisable,
notwithstanding that stock options previously granted to such Participant
remain unexercised.

                                    -3-
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11.     Nontransferability of Stock Options.  Except to the extent authorized 
by the Committee, no stock option granted  under the Plan to a Participant
shall be transferable by such Participant otherwise than by will, or by the
laws of descent and distribution, and stock options shall be exercisable,
during the lifetime of the Participant, only by the Participant.

12.     Term of Stock Options.  If not sooner terminated, each stock option
granted hereunder shall expire upon the earlier to occur of the date five (5)
years from Option Grant Date or the date ninety (90) days (three (3) years in
the event a director attains the Board's mandatory retirement age or, with
Committee approval, upon termination of service for any other reason, other
than voluntary resignation or termination for cause) following the date upon
which the Participant ceases to be a member of the Board of Directors.
Notwithstanding the foregoing, all outstanding options held by a Participant
shall expire immediately upon the Participant's termination for cause.  For
purposes of this plan, "termination for cause" shall mean termination because
of a Participant's personal dishonesty, incompetence, willful misconduct,
breach of fiduciary duty involving personal profit, intentional failure to
perform stated duties, or willful violation of any law, rule, or regulation
(other than traffic violations or similar offenses).

13.     Investment Purpose.  If the Committee in its discretion determines
that as a matter of law such procedure is or may be desirable, it may require
a Participant, upon any acquisition of stock hereunder and as a condition to
the Corporation's obligation to deliver certificates representing such shares,
to execute and deliver to the Corporation a written statement, in form
satisfactory to the Committee, representing and warranting that the
Participant's acquisition of shares of stock shall be for such person's own
account, for investment and not with a view to the resale or distribution
thereof and that any subsequent offer for sale or sale of any such shares
shall be made either pursuant to (a) a Registration Statement on an
appropriate form under the Securities Act of 1933, as amended (the "Securities
Act"), which Registration Statement has become effective and is current with
respect to the shares being offered and sold, or (b) a specific exemption from
the registration requirements of the Securities Act, but in claiming such
exemption the Participant shall, prior to any offer for sale or sale of such
shares, obtain either the Corporation's approval or a favorable written
opinion from counsel for or approved by the Corporation as to the availability
of such exemption.  The Corporation may endorse an appropriate legend
referring to the foregoing restriction upon the certificate or certificates
representing any shares issued or transferred to the Participant under this
Plan.

14.     No Right to Continued Service as a Director.  Nothing contained in the
Plan or in any stock option granted pursuant to the Plan, nor any action taken
by the Committee hereunder, shall confer upon any Participant any right with
respect to continuation of service as a director of the Corporation or an
Affiliate nor interfere in any way with the right of the Corporation, any
Affiliate, or their stockholders to terminate such Participant's service as a
director at any time.

15.     Withholding Payments.  If upon the exercise of an option there shall
be payable by the Corporation any amount for income tax withholding, then in
the Committee's sole discretion, either the Corporation shall appropriately
reduce the amount of stock to be paid to the Participant or the Participant
shall pay such amount to the Corporation to reimburse it for such income tax
withholding.  The Committee may, in its sole discretion permit Participants to
satisfy such withholding obligations, in whole or in part, by electing to have
the amount of Common Stock delivered or deliverable upon exercise of a stock
option appropriately reduced, or by electing to tender Common Stock back to
the Corporation subsequent to exercise of a stock option, to reimburse the

                                    -4-
<PAGE>
<PAGE>
Corporation for such income tax withholding, subject to such rules and 
regulations as the Committee may adopt.  The Committee may make such other
arrangements with respect to income tax withholding as it shall determine.

16.     Effectiveness of Plan.  The Plan shall be effective on the date the
Board of Directors adopts the Plan, provided that the stockholders of the
Corporation approve the Plan within twelve (12) months of its adoption by the
Board of Directors.  Stock options may be granted prior to stockholder
approval of the Plan, but all such stock option grants shall be subject to
stockholder approval of the Plan.  No stock option may be exercised prior to
stockholder approval.  If the stockholders of the Corporation do not approve
the Plan within twelve (12) months of its adoption by the Board of Directors,
each Participant shall be entitled to receive in cash all director fees
previously applied toward the grant of Nonqualified Options hereunder.

17.     Termination, Duration, and Amendment of Plan.

        (a)     The Plan may be terminated at any time by the Board of
Directors of the Corporation.  Unless sooner terminated, the Plan shall
terminate on the date five (5) years after its adoption by the Board of
Directors, and no stock options may be granted thereafter.  The termination of
the Plan shall not affect the validity of any stock option outstanding on the
date of termination.

        (b)     The Board of Directors may amend, alter, suspend, discontinue,
or terminate the Plan or any portion thereof at any time; provided that no
such amendment, alteration, suspension, discontinuation or termination shall
be made without shareholder approval if such approval is necessary to comply
with any tax or regulatory requirement.

18.     Rule 16b-3 Compliance.  With respect to persons subject to Section 16
of the Exchange Act, transactions under this Plan are intended to comply with
all applicable terms and conditions of Rule 16b-3 and any successor
provisions.  To the extent that any provision of the Plan or action by the
Committee or the Board of Directors fails to so comply, it shall be deemed
null and void, to the extent permitted by law and deemed advisable by the
Committee.

19.     Governing Law.  The validity, construction, and effect of the Plan and
any rules and regulations relating to the Plan shall be determined in
accordance with the laws of the State of Washington, without giving effect to
the choice of law principles thereof.

                                    -5-
<PAGE>
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REGISTRATION STATEMENT NO. 333-_____
                             Filed April 4, 1997

                     SECURITIES AND EXCHANGE COMMISSION
                          Washington, D.C.  20549

                                 FORM S-8
                          REGISTRATION STATEMENT
                                  UNDER
                        THE SECURITIES ACT OF 1933

                          INTERWEST BANCORP, INC.
            ------------------------------------------------------
            (Exact name of registrant as specified in its charter)

        Washington                                   91-1691216
--------------------------------                -------------------      
(State or other jurisdiction of                 (I.R.S. Employer
incorporation or organization)                  Identification No.)

                            275 S.E. Pioneer Way
                        Oak Harbor, Washington  98277
                              (360) 679-4181
                   ----------------------------------------
                   (Address of principal executive offices)

                         InterWest Bancorp, Inc.
            1996 Outside Directors Stock Options-for-Fees Plan
            ---------------------------------------------------
                          (Full title of the Plan)

        Stephen M. Walden                  Copies to:
        President and Chief                Eric S. Kracov, Esquire
         Executive Officer                 Breyer & Aguggia
        InterWest Bancorp, Inc.            1300 I Street, N.W.
        275 S.E. Pioneer Way               Suite 470 East
        Oak Harbor, Washington 98277       Washington, D.C.  20005
        (360) 679-4181                     (202) 737-7900
        -----------------------------
        Name, address and telephone
        number of agent for service

                              Page 1 of 7 Pages
                    Index to Exhibits Appears on Page 4.
Calculation of Registration Fee
------------------------------------------------------------------------------ 
Title of 
Securities     Amount       Proposed Maximum   Proposed Maximum     Amount of
 to be         to be        Offering Price        Aggregate       Registration
Registered   Registered     Per Share(1)       Offering Price(1)       Fee
------------------------------------------------------------------------------
Common Stock,
$.20 par
value         25,000(2)       $30.50           $762,500              $232
------------------------------------------------------------------------------
(1)   Estimated solely for the purpose of calculating the amount of the        
      registration fee.  Pursuant to Rule 457(c) under the Securities Act of   
      1933, as amended, (the "Securities Act"), the price per share is         
      estimated to be $30.50 based upon the average of the high and low        
      trading prices of the common stock, $.20 par value per share ("Common    
      Stock") of Interwest Bancorp, Inc. (the "Registrant"), as reported on    
      the Nasdaq Stock Market on April 2, 1997.

(2)   25,000 shares are being registered for issuance under the InterWest      
      Bancorp, Inc. 1996 Outside Directors Stock Options-for-Fees Plan         
      ("Plan"); together with an indeterminate number of shares reserved for   
      issuance pursuant to the Plan as a result of any future stock split,     
      stock dividend or similar adjustment of the outstanding Common Stock.

                             --------------------

         This Registration Statement shall become effective automatically upon
the date of filing in accordance with Section 8(a) of the Securities Act of
1933, as amended, and 17 C.F.R. Section 230.462.

                                    -2-
PART II

             INFORMATION REQUIRED IN THE REGISTRATION STATEMENT

Item 3.  Incorporation of Certain Documents by Reference
------
         The following documents filed with the Commission are incorporated in
this Registration Statement by reference:

         (1)    The Registrant's Annual Report on Form 10-K (File No. 0-26632)
for the year ended September 30, 1996;

         (2)    The description of the Common Stock contained in the
Registrant's Joint Proxy Statement/Prospectus dated May 6, 1996 and filed as
part of the Registrant's Registration Statement on Form S-4 (File No.
333-2452), dated March 15, 1996 and amended April 29, 1996; and

         (3)    All other reports filed by the Registrant pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act")
since the end of the fiscal year covered by the Annual Report referred to in
(1) above.

         All other reports filed by the Registrant pursuant to Section 13(a)
or 15(d) of the Exchange Act, after the date of and prior to the filing of a
post-effective amendment which indicates that all securities offered hereby
have been sold or which deregisters all securities covered hereby then
remaining unsold, shall also be deemed to be incorporated by reference in this
Registration Statement and to be a part hereof commencing on the respective
dates on which such documents are filed.

         Any statement contained in this Registration Statement, or in a
document incorporated or deemed to be incorporated by reference herein, shall
be deemed to be modified or superseded for purposes of this Registration
Statement to the extent that a statement contained herein, or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein, modifies or supersedes such statement.  Any such statement
so modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Registration Statement.

Item 4.  Description of Securities
------
         Not Applicable

Item 5.  Interests of Named Experts and Counsel
------
         Not Applicable

Item 6.  Indemnification of Directors and Officers
------
         Section 23B.08.510 of the Revised Code of Washington sets forth
circumstances under which a corporation may indemnify an individual.

         Article IX of Registrant's Articles of Incorporation provides for
indemnification of the directors of the Registrant for monetary damages for
conduct as a director, except for liability of the director for acts or
omissions that involve: (i) intentional misconduct by the director; (ii) a
knowing violation of law by the director; (iii) conduct violating Section
23B.08.310 of the Revised Code of Washington; or (iv) any transaction from
which the director will personally receive a benefit in money, property or
services to which the director is not legally entitled.

                                    -3-
PAGE
Item 7.  Exemption From Registration Claimed
------
         Not Applicable

Item 8.  Exhibits
------
         The following exhibits are filed with or incorporated by reference
into this Registration Statement on Form S-8:

         No.                            Exhibit
         ---                            -------
                        
          5                 Opinion of Breyer & Aguggia

         23.1               Consent of Ernst & Young LLP

         23.2               Consent of Deloitte & Touche LLP

         23.3               Consent of Deloitte & Touche LLP

         23.4               Consent of KPMG Peat Marwick LLP

         23.5               Consent of Breyer & Aguggia (see Exhibit 5)

         24                 Power of attorney (see signature pages)

         99.1               1996 Outside Directors Stock Options-for-Fees Plan

Item 9.  Undertakings
------
         The undersigned Registrant hereby undertakes:

         1.     To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement (i) to include
any prospectus required by Section 10(a)(3) of the Securities Act, (ii)  to
reflect in the prospectus any facts or events arising after the effective date
of the Registration Statement (or most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental
change in the information set forth in the Registration Statement, and (iii)
to include any material information with respect to the  plan of distribution
not previously disclosed in the Registration Statement or any material change
in such information in the Registration Statement; provided, however, that
clauses (i) and (ii) do not apply if the information required to be included
in a post-effective amendment by those clauses is contained in periodic
reports filed by the Registrant pursuant to Section 13 or Section 15(d) of the
Exchange Act that are incorporated by reference in the Registration Statement.

         2.     That, for the purposes of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed the initial bona fide
offering thereof.

         3.     To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.

         4.     That, for the purposes of determining any liability under the
Securities Act, each filing of the Registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Exchange Act that is incorporated by
reference in the Registration Statement shall be deemed to a new registration
statement relating to the securities offered therein, and that offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.

         5.     Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officer and controlling
persons of the registrant pursuant to the foregoing provisions or otherwise,
the Registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act
and
                                    -4-
is, therefore, unenforceable.  In the event that a claim for indemnification
against liabilities (other than the payment by the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the questions whether such indemnification by it is
against public policy expressed in the Securities Act will and will be
governed by the final adjudication of such issue.

                                    -5-
SIGNATURES

        Pursuant to the requirements of the Securities Act of 1933, InterWest
Bancorp, Inc. certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-8 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned thereunto
duly authorized, in the City of Oak Harbor, and State of Washington the 31st
day of March 1997.

                                    INTERWEST BANCORP, INC.

                                    By: /s/ Stephen M. Walden
                                        ------------------------------
                                        Stephen M. Walden
                                        President and Chief Executive Officer
                                        (Principal Executive Officer)

                          POWER OF ATTORNEY

        Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.  Each person whose signature appears
below hereby makes, constitutes and appoints Stephen M. Walden his true and
lawful attorney, with full power to sign for such person and in such person's
name and capacity indicated below, and with full power of substitution any and
all amendments to this Registration Statement, hereby ratifying and confirming
such person's signature as it may be signed by said attorney to any and all
amendments.

By: /s/ Stephen M. Walden                     Date:  March 31, 1997
    --------------------------------------
    Stephen M. Walden
    President and Chief Executive Officer
    (Principal Executive Officer)

By: /s/ H. Glenn Mouw                         Date:  March 31, 1997
    --------------------------------------
    H. Glenn Mouw
    Executive Vice President and Chief
    Financial Officer
    (Principal Financial Officer)

By: /s/ Carla Tucker                          Date:  March 31, 1997
    --------------------------------------
    Carla Tucker
    Vice President and Controller
    (Principal Accounting Officer)

By: /s/ Barney R. Beeksma                     Date:  March 31, 1997
    --------------------------------------
    Barney R. Beeksma
    Chairman of the Board of Directors

                                    -6-
By: /s/ Jean Gorton                           Date:  March 31, 1997
    --------------------------------------
    Jean Gorton
    Director

By: /s/ Michael T. Crawford                   Date:  March 31, 1997
    --------------------------------------
    Michael T. Crawford
    Director

By:                                           Date:  March __, 1997
    --------------------------------------
    Larry Carlson
    Director

By: /s/ Clark H. Mock                         Date:  March 31, 1997
    --------------------------------------
    Clark H. Mock
    Director

By:  /s/ Vern Sims                            Date:  March 31, 1997
     -------------------------------------
    Vern Sims
    Director

By: /s/ C. Stephen Lewis                      Date:  March 31, 1997
    --------------------------------------
    C. Stephen Lewis
    Director

By: /s/ Russel E. Olson                       Date:  March 31, 1997
    --------------------------------------
    Russel E. Olson
    Director

By: /s/ Henry Koetje                          Date:  March 31, 1997
    --------------------------------------
    Henry Koetje
    Director

By: /s/ Gary M. Bolyard                       Date:  March 31, 1997
    --------------------------------------
    Gary M. Bolyard
    Director

                                    -7-
Exhibit 5

                           Opinion of Breyer & Aguggia
April 2, 1997

Board of Directors
InterWest Bancorp, Inc.
275 S.E. Pioneer Way
Oak Harbor, Washington  98277

Gentlemen:
        
        We have acted as special counsel to InterWest Bancorp, Inc., a
Washington corporation (the "Corporation"), in connection with the preparation
and filing with the Securities and Exchange Commission pursuant to the
Securities Act of 1933, as amended, of a Registration Statement on Form S-8
(the "Registration Statement"), relating to the registration of up to 25,000
shares of Corporation common stock, $.20 par value per share ("Common Stock"),
to be issued pursuant to the Corporation's 1996 Outside Directors Stock
Options-for-Fees Plan (the "Plan") upon the exercise of stock options ("Option
Rights").  The Registration Statement also registers an undeterminable number
of additional shares which may be necessary under the Plan to adjust the
number of shares reserved for issuance as the result of a stock split, stock
dividend or similar adjustment of the outstanding Common Stock of the
Corporation.  We have been requested by the Corporation to furnish an opinion
to be included as an exhibit to the Registration Statement.

        We have reviewed the Registration Statement, the Articles of
Incorporation and Bylaws of the Corporation, the Plan, a specimen stock
certificate evidencing the Common Stock of the Corporation and such other
corporate records and documents as we have deemed appropriate for the purpose
of rendering this opinion.  We are relying upon the originals, or copies
certified or otherwise identified to our satisfaction, of the corporate
records of the Corporation and such other instruments, certificates and
representations of public officials, officers and representatives of the
Corporation as we have deemed appropriate or relevant as a basis for the
opinion set forth below.  In addition, we have assumed, without independent
verification, the genuineness of all signatures and the authenticity of all
documents furnished to us and the conformity in all respects of copies to
originals.
Board of Director
April 2, 1997
Page 2

        For purposes of this opinion, we have also assumed that (i) the shares
of Common Stock issuable pursuant to Option Rights granted under the terms of
the Plan will continue to be validly authorized on the dates the Common Stock
is issued pursuant to the Option Rights; (ii) on the dates the Option Rights
are exercised, the Option Rights granted under the terms of the Plan will
constitute valid, legal and binding obligations of the Corporation and will
(subject to applicable bankruptcy, moratorium, insolvency, reorganization and
other laws and legal principles affecting the enforceability of creditors'
rights generally) be enforceable as to the Corporation in accordance with
their terms; (iii) no change occurs in applicable law or the pertinent facts;
and (iv) the provisions of "blue sky" and other securities laws as may be
applicable have been complied with to the extent required.

        Based upon the foregoing, and subject to the qualifications and
assumptions set forth herein, we are of the opinion as of the date hereof that
the shares of Common Stock to be issued pursuant to the Plan, when issued and
sold pursuant to and in accordance with the Registration Statement and the
Plan and upon receipt of the consideration required thereby, will be legally
issued, fully paid and non-assessable shares of Common Stock of the
Corporation.

        We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.

                                   Sincerely,

                                   /s/ Breyer & Aguggia

                                   BREYER & AGUGGIA
Exhibit 23.1

                            Consent of Ernst & Young LLP
Consent of Independent Auditors

We consent to the incorporation by reference in the Registration Statement on
Form S-8 dated April 4, 1997 pertaining to the InterWest Bancorp, Inc. 1996
Outside Directors Stock Options-for-Fees Plan of our report dated November 7,
1996 with respect to the consolidated financial statements of InterWest
Bancorp, Inc. incorporated by reference in its Annual Report on Form 10-K for
the year ended September 30, 1996, filed with the Securities and Exchange
Commission.

/s/ Ernst & Young

Seattle, Washington
April 2, 1997
Exhibit 23.2

                            Consent of Deloitte & Touche LLP
INDEPENDENT AUDITORS' CONSENT

Board of Directors
Interwest Bancorp, Inc.
Oak Harbor, Washington

We consent to the incorporation by reference in the Registration Statement of
Interwest Bancorp, Inc. on Form S-8 of our report dated October 28, 1994, for
Interwest Savings Bank and subsidiaries, appearing in the Annual Report on
Form 10-K of Interwest Bancorp, Inc. for the year ended September 30, 1996.

/s/ Deloitte & Touche

April 2, 1997
Seattle, Washington
Exhibit 23.3

                        Consent of Deloitte & Touche LLP
INDEPENDENT AUDITORS' CONSENT

Board of Directors
Interwest Bancorp, Inc.
Oak Harbor, Washington

We consent to the incorporation by reference in the Registration Statement of
Interwest Bancorp, Inc. on Form S-8 of our report dated January 19, 1996, for
Central Bancorporation and subsidiaries, appearing in the Annual Report on
Form 10-K of Interwest Bancorp, Inc. for the year ended September 30, 1996.

/s/ Deloitte & Touche

April 2, 1997
Seattle, Washington
Exhibit 23.4

                           Consent of KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
3100 Two Union Square
601 Union Street
Seattle, WA  98101-2327

                         CONSENT OF INDEPENDENT
                      CERTIFIED PUBLIC ACCOUNTANTS
------------------------------------------------------------------------------

The Board of Directors
InterWest Bancorp, Inc.:

We consent to incorporation by reference in the registration statement Form S-
8, related to the InterWest Bancorp, Inc. 1996 Outside Directors Stock
Options-for-Fees Plan, of our report dated January 20, 1995, relating to the
Central Bancorporation and subsidiary consolidated statement of operations for
the year ended December 31, 1994 which report appears in the September 30,
1996 Annual Report on Form 10-K of InterWest Bancorp, Inc.

/s/ KPMG Peat Marwick

Seattle, Washington
April 2, 1997
Exhibit 23.5

                      Consent of Breyer & Aguggia (see Exhibit 5)
Exhibit 24

                       Power of Attorney (see signature page)
Exhibit 99.1

                  1996 Outside Directors Stock Options-for-Fees Plan
InterWest Bancorp, Inc.

            1996 Outside Directors Stock Options-for-Fees Plan

1.      Purpose of Plan.  The purpose of the Plan is to provide non-employee
directors of the Corporation with an increased incentive to make significant
and extraordinary contributions to the long-term performance and growth of the
Corporation and its Affiliates, to join the interests of non-employee
directors with the interests of the stockholders of the Corporation, and to
facilitate attracting and retaining non-employee directors of exceptional
ability.

2.      Definitions.  As used herein, the following definitions shall apply:

        "Affiliate" shall mean any corporation in which the Corporation owns,
directly or indirectly, stock possessing more than fifty percent of the
combined voting power of all classes of stock.

        "Board of Directors" shall mean the board of directors of the
Corporation.

        "Committee" shall mean a committee of the Board of Directors
designated by the Board to administer the Plan.

        "Common Stock" shall mean the common stock, $.20 par value per share,
of the Corporation.

        "Corporation" shall mean InterWest Bancorp, Inc., a Washington
corporation, or any successor thereof.

        "Director Notice" shall mean a written notice setting forth the
Participant's election under Section 4(b) of the Plan and delivered by a
Participant to the Corporation prior to the first day of the calendar year, to
be effective for such year or years as are specified in such notice.  A
Director Notice shall be irrevocable for the current calendar year but may be
modified by a Participant with respect to a future year(s).

        "Fair Market Value" shall mean, as of any date, the closing price of
the Corporation's Common Stock on the Nasdaq National Market System.  If the
Common Stock is not traded on a national securities exchange or quoted on the
Nasdaq Stock Market, and there are not at least two brokerage companies
reporting a bid price per share on the Option Grant Date, then the Fair Market
Value shall be that value determined in good faith by the Committee in such
manner as it deems appropriate.

        "Nonqualified Option" shall mean an option to purchase Common Stock
which meets the requirements set forth in the Plan but does not meet the
definition of an incentive stock option set forth in Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code").

        "Option Grant Date" shall mean the first business day of each calendar
year following the effective date of the Plan.

        "Option Price" shall mean the price at which a Nonqualified Option may
be exercised which shall be the Fair Market Value on the Option Grant Date of
such Nonqualified Option.

        "Participant" shall mean a member of the Board of Directors who is not
an employee of the Corporation or an Affiliate.

        "Plan" shall mean this InterWest Bancorp, Inc. 1996 Outside Directors
Stock Options-for-Fees Plan.
"Total Director Fees" shall mean, with respect to any calendar year,
$8,000, as the retainer fee payable to an outside Director for service on the
Board of Directors of the Corporation.

3.      Administration.  The Plan shall be administered by the Committee. 
Subject to the provisions of the Plan, the Committee is authorized to
interpret the Plan, to promulgate, amend and rescind rules and regulations
relating to the Plan and to make all other determinations necessary or
advisable for its administration.  Interpretation and construction of any
provision of the Plan by the Committee shall be final and conclusive.  Acts
approved by a majority of the members present at any meeting at which a quorum
is present, or acts unanimously approved in writing by the Committee, shall be
the acts of the Committee.

4.      Annual Grants.

        (a)     Each Participant shall deliver a Director Notice to the
Corporation on or before the date specified in the Plan.  During the term of
this Plan, on the first business day of each calendar year following the
effective date of the Plan, each Participant shall receive a Nonqualified
Option to the extent of the Participant's election in his or her Director
Notice in effect for such year.  The option exercise price for each such
Nonqualified Option shall be the Option Price.  If, with respect to any
calendar year, a Director Notice is not received from a Participant, the
Participant's Total Director Fees shall be payable in cash.

        (b)     Each Participant may specify one of the following elections in
a Director Notice:

                (i)     Option 1.   Receive Total Director Fees in cash,       
                        payable quarterly;

                (ii)    Option 2.   Receive a Nonqualified Option covering two 
                        hundred fifty (250) shares of Common Stock and         
                        one-half of Total Director Fees in cash, payable       
                        quarterly, or

                (iii)   Option 3.   Receive a Nonqualified Option covering     
                        five hundred (500) shares of Common Stock.
 
5.      Vesting.  Each Nonqualified Option issued pursuant to this Plan shall
be conditioned on the Participant continuing to serve as a member of the Board
for a period of one (1) year following the Option Grant Date.  The
Nonqualified Option may not be exercised during said one (1) year period.  If
a Participant ceases to be a member of the Board prior to the expiration of
the one (1) year period, all unexercisable Nonqualified Options held by the
Participant shall be cancelled as of the Participant's last day of service.

6.      Indemnification of Committee Members.  In addition to such other
rights of indemnification as they may have, the members of the Committee shall
be indemnified by the Corporation against the reasonable expenses, including
attorneys' fees, actually and necessarily incurred in connection with the
defense of any action, suit or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan or any option
granted hereunder, and against all amounts paid by them in settlement thereof
(provided such settlement is approved by independent legal counsel selected by
the Corporation) or paid by them in satisfaction of a judgment in any such
action, suit or

                                    -2-
proceeding, except in relation to matters as to which it shall be adjudged in
such action, suit or proceeding that such Committee member has acted in bad
faith; provided, however, that within sixty (60) days after receipt of notice
of institution of any such action, suit or proceeding a Committee member shall
offer the Corporation in writing the opportunity, at its own cost, to handle
and defend the same.

7.      Maximum Number of Shares Subject to Plan.  The maximum number of
shares with respect to which stock options may be granted under the Plan shall
be 25,000 shares in the aggregate of Common Stock of the Corporation, which
may consist in whole or in part of the authorized and unissued or reacquired
Common Stock of the Corporation.  If a stock option expires or terminates for
any reason without having been fully exercised, the number of shares with
respect to which the stock option was not exercised at the time of its
expiration or termination shall again become available for the grant of stock
options under the Plan, unless the Plan shall have been terminated.

        The number of shares subject to each outstanding stock option, the
option price with respect to outstanding stock options, and the aggregate
number of shares remaining available under the Plan shall be subject to such
adjustment as the Committee, in its discretion, deems appropriate to reflect
such events as stock dividends, stock splits, recapitalization, mergers,
consolidations or reorganizations of or by the Corporation; provided, however,
that no fractional shares shall be issued pursuant to the Plan, no rights may
be granted under the Plan with respect to fractional shares, and any
fractional shares resulting from such adjustments shall be eliminated from any
outstanding stock option.

8.      Written Agreement.  Each stock option shall be evidenced by a written
agreement and shall contain such provisions as may be approved by the
Committee.  Such agreements shall constitute binding contracts between the
Corporation and the Participant, and every Participant, upon acceptance of
such agreement, shall be bound by the terms and restrictions of the Plan and
of such agreement.  The terms of each such agreement shall be in accordance
with the Plan, but the agreements may include such additional provisions and
restrictions determined by the Committee, provided that such additional
provisions and restrictions are not inconsistent with the terms of the Plan.

9.      Payment of Stock Option Price.  To exercise in whole or in part any
stock option granted hereunder, payment of the option price in full in cash
shall be made by the Participant for all shares so purchased.  No Participant
shall have any of the rights of a stockholder of the Corporation under any
stock option until the actual issuance of shares to said Participant, and
prior to such issuance no adjustment shall be made for dividends,
distributions or other rights in respect of such shares, except as provided in
Paragraph 7.

10.     Exercise of Stock Options.  A Participant may exercise a stock option,
in whole or in part, by delivery to the Corporation of written notice of the
exercise, in such form as the Committee may prescribe, accompanied by (i) full
payment for the shares with respect to which the stock option is exercised, in
cash, or (ii) in the sole discretion of the Committee, irrevocable
instructions to a stock broker to promptly deliver to the Corporation full
payment for the shares with respect to which the stock option is exercised
from the proceeds of the stock broker's sale of or loan against the shares. 
Successive stock options may be granted to the same Participant, whether or
not the stock option(s) previously granted to such Participant remain
unexercised.  A Participant may exercise a stock option, if then exercisable,
notwithstanding that stock options previously granted to such Participant
remain unexercised.

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11.     Nontransferability of Stock Options.  Except to the extent authorized 
by the Committee, no stock option granted  under the Plan to a Participant
shall be transferable by such Participant otherwise than by will, or by the
laws of descent and distribution, and stock options shall be exercisable,
during the lifetime of the Participant, only by the Participant.

12.     Term of Stock Options.  If not sooner terminated, each stock option
granted hereunder shall expire upon the earlier to occur of the date five (5)
years from Option Grant Date or the date ninety (90) days (three (3) years in
the event a director attains the Board's mandatory retirement age or, with
Committee approval, upon termination of service for any other reason, other
than voluntary resignation or termination for cause) following the date upon
which the Participant ceases to be a member of the Board of Directors.
Notwithstanding the foregoing, all outstanding options held by a Participant
shall expire immediately upon the Participant's termination for cause.  For
purposes of this plan, "termination for cause" shall mean termination because
of a Participant's personal dishonesty, incompetence, willful misconduct,
breach of fiduciary duty involving personal profit, intentional failure to
perform stated duties, or willful violation of any law, rule, or regulation
(other than traffic violations or similar offenses).

13.     Investment Purpose.  If the Committee in its discretion determines
that as a matter of law such procedure is or may be desirable, it may require
a Participant, upon any acquisition of stock hereunder and as a condition to
the Corporation's obligation to deliver certificates representing such shares,
to execute and deliver to the Corporation a written statement, in form
satisfactory to the Committee, representing and warranting that the
Participant's acquisition of shares of stock shall be for such person's own
account, for investment and not with a view to the resale or distribution
thereof and that any subsequent offer for sale or sale of any such shares
shall be made either pursuant to (a) a Registration Statement on an
appropriate form under the Securities Act of 1933, as amended (the "Securities
Act"), which Registration Statement has become effective and is current with
respect to the shares being offered and sold, or (b) a specific exemption from
the registration requirements of the Securities Act, but in claiming such
exemption the Participant shall, prior to any offer for sale or sale of such
shares, obtain either the Corporation's approval or a favorable written
opinion from counsel for or approved by the Corporation as to the availability
of such exemption.  The Corporation may endorse an appropriate legend
referring to the foregoing restriction upon the certificate or certificates
representing any shares issued or transferred to the Participant under this
Plan.

14.     No Right to Continued Service as a Director.  Nothing contained in the
Plan or in any stock option granted pursuant to the Plan, nor any action taken
by the Committee hereunder, shall confer upon any Participant any right with
respect to continuation of service as a director of the Corporation or an
Affiliate nor interfere in any way with the right of the Corporation, any
Affiliate, or their stockholders to terminate such Participant's service as a
director at any time.

15.     Withholding Payments.  If upon the exercise of an option there shall
be payable by the Corporation any amount for income tax withholding, then in
the Committee's sole discretion, either the Corporation shall appropriately
reduce the amount of stock to be paid to the Participant or the Participant
shall pay such amount to the Corporation to reimburse it for such income tax
withholding.  The Committee may, in its sole discretion permit Participants to
satisfy such withholding obligations, in whole or in part, by electing to have
the amount of Common Stock delivered or deliverable upon exercise of a stock
option appropriately reduced, or by electing to tender Common Stock back to
the Corporation subsequent to exercise of a stock option, to reimburse the

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Corporation for such income tax withholding, subject to such rules and 
regulations as the Committee may adopt.  The Committee may make such other
arrangements with respect to income tax withholding as it shall determine.

16.     Effectiveness of Plan.  The Plan shall be effective on the date the
Board of Directors adopts the Plan, provided that the stockholders of the
Corporation approve the Plan within twelve (12) months of its adoption by the
Board of Directors.  Stock options may be granted prior to stockholder
approval of the Plan, but all such stock option grants shall be subject to
stockholder approval of the Plan.  No stock option may be exercised prior to
stockholder approval.  If the stockholders of the Corporation do not approve
the Plan within twelve (12) months of its adoption by the Board of Directors,
each Participant shall be entitled to receive in cash all director fees
previously applied toward the grant of Nonqualified Options hereunder.

17.     Termination, Duration, and Amendment of Plan.

        (a)     The Plan may be terminated at any time by the Board of
Directors of the Corporation.  Unless sooner terminated, the Plan shall
terminate on the date five (5) years after its adoption by the Board of
Directors, and no stock options may be granted thereafter.  The termination of
the Plan shall not affect the validity of any stock option outstanding on the
date of termination.

        (b)     The Board of Directors may amend, alter, suspend, discontinue,
or terminate the Plan or any portion thereof at any time; provided that no
such amendment, alteration, suspension, discontinuation or termination shall
be made without shareholder approval if such approval is necessary to comply
with any tax or regulatory requirement.

18.     Rule 16b-3 Compliance.  With respect to persons subject to Section 16
of the Exchange Act, transactions under this Plan are intended to comply with
all applicable terms and conditions of Rule 16b-3 and any successor
provisions.  To the extent that any provision of the Plan or action by the
Committee or the Board of Directors fails to so comply, it shall be deemed
null and void, to the extent permitted by law and deemed advisable by the
Committee.

19.     Governing Law.  The validity, construction, and effect of the Plan and
any rules and regulations relating to the Plan shall be determined in
accordance with the laws of the State of Washington, without giving effect to
the choice of law principles thereof.

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