There’s an interesting ‘flex index CD’ offering from Merchants Bank of Indiana which has a floating rate which goes up and down based on the rates set by the feds.
Flex Index CD from Merchants Bank of Indiana |Â see the current Prime Rate index rates here
You lock in the money with a 12 or 24 or 36 month CD, and get an interest rate equal to the Prime Rate index minus a margin of 2.75%. There’s also a floor of 0% ensuring that you never actually lose money.
Currently the bank shows a CD earn rate of 2.79% APY. That’s based on a 5.50% fed rate. They discount 2.75% off 5.50% resulting in 2.75%, which turns into 2.79% when compounded.
The best 12-month CD rate at the time of this writing is 3.00% from Comenity Bread Bank. The 2.79% rate from Merchants Bank of Indiana is lower right now.
Now, suppose in 6 months the feds raise interest rates by another 1%. You’ll end up getting 3.82% APY on the second half of the year and 2.79% on the first half. That gives you a higher annualized return than the 3% Comenity offering. Note again: rates can go up or down based on the feds interest rate.
I don’t recall seeing a similar offering and found this intriguing. In the end, you’ll have to run the numbers for yourself based on how you predict the next 12/24/36 months playing out and decide if this CD is a good option for you. It could be a good option for someone who prefers just riding the market rate and not having to constantly adjust to find the best one.
Hat tip to BobbyJ
With the expected fed rate change down next year, it is better to do a CD even if they are .5% lower.
Didnt see too many details online, but is it one time funding?? (unlike add-to-later like Navy)
Also, soft pull, chex, etc? TIA!
+1 looking for the same information.
One time funding only.
0.50% higher than CDs and TBills for 1 year lock.
Rate now 5.92%
This is Jedi Mind trick # 36. The floating rates will always be at par with treasuries and high yield savings excepts you have to pay for early withdrawal penalties on this CD.
lol right! “I’m a Toydarian. Mind tricks don’t-a work on-a me. Only money”
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The Flex Index CD rate is now 3.56%
Rate now 4.34%
Rate now 4.86%
I started building a Treasury bill ladder in May and there have been nice steady increases, though more level lately. The 26 week rate is close to 3%. Two of my reward checking accounts with requirements still only pay around 1%. Those balances were emptied out along the way but no harm in keeping the accounts open for the time being.
Just my opinion of course, but I find the upside on things like this to be too small. And even obtaining that small upside requires the ability to predict the future.
For non-psychics like me, this means we’re unlikely to achieve any significant gains over market average.
For psychic DoC readers, I suspect you have better plays.
It mentions ‘Penalty may be imposed for early withdrawal.’ However, I couldn’t find the details of the early withdrawal penalty.
IMO, it makes little sense to deposit into any sorts of CDs that have early withdrawal penalty, considering more and more high interest rate checking and savings account offerings. It’s easy to find 2% accounts.