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
Down from 5.92% to 5.39% APY
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.