Merchants Bank of Indiana Flex Index CD: A Smart Bet for Rising Rates?

If you've been shopping around for CDs lately, you know rates have been sliding. But Merchants Bank of Indiana is still offering a standout 5.39% APY on their Flex Index CD for terms of 12, 24, or 36 months. That's a solid rate in today's environment, and what's interesting is how this CD actually works—it's not your typical fixed-rate certificate. Let's break it down.

What Makes the Flex Index CD Different?

Most CDs lock you into a fixed rate for the entire term. If rates go up, you're stuck. If they go down, well, you're still stuck—but at least you locked in a higher rate. The Flex Index CD flips that script. Its interest rate is tied to the Prime Rate, minus a margin of 2.75%. So if the Fed hikes rates, your CD rate can rise too. There's a floor of 0%, so it won't go negative, but it can go up.

That said, the current Prime Rate is around 8.50% (as of late 2024). Subtract 2.75%, and you get 5.75%—which is actually a bit higher than the advertised 5.39% APY. So the bank may be offering a promotional rate or capping it. Always check the fine print.

• Rate = Prime Rate – 2.75% (variable)
• Floor of 0% means you'll never earn negative interest
• Rate can change at any time based on the index
• Minimum balance of $1,000 required to earn the APY

Traditional CDs Also Available

Not into the variable-rate thing? Merchants Bank also offers standard fixed-rate CDs with terms from 1 month to 36 months. As of late October 2024, their 3-month and 6-month CDs were paying 4.75% APY, which is competitive. The 12-month fixed CD was at 3.75%—noticeably lower than the Flex Index version. So if you want a guaranteed rate, you might do better elsewhere for shorter terms.

• 1-month: 3.67% APY
• 3-month: 4.75% APY
• 6-month: 4.75% APY
• 12-month: 3.75% APY
• 18-month: 3.32% APY
• 24-month: 3.37% APY
• 36-month: 3.48% APY

Things to Watch Out For

First, the Flex Index CD is a variable-rate product. If the Fed cuts rates, your APY will drop. That's the trade-off for the potential upside. Second, there's an early withdrawal penalty, though the bank doesn't specify how much on their site. That's a red flag—always ask before you commit. Third, you need to keep at least $1,000 in the account every day to earn the advertised APY. Let it dip below, and your interest could take a hit.

Also, while the bank is FDIC insured and has an A health rating, it's a smaller institution (6 branches in Indiana). That's fine for online banking, but if you prefer in-person service, you might miss that.

Who Is This CD For?

This CD is ideal if you think interest rates might rise (or at least stay flat) over the next 1-3 years. If you're worried about locking in a rate that could become uncompetitive, the Flex Index gives you some flexibility. But if you want certainty, go with a fixed-rate CD from another bank. And always compare—there are plenty of other options out there paying 4%+ on shorter terms.

Bottom Line

• The Flex Index CD offers a variable rate tied to Prime, currently yielding 5.39% APY.
• Minimum deposit is $1,000; terms are 12, 24, or 36 months.
• Rate can rise with Prime but also fall—no floor below 0%.
• Early withdrawal penalty applies; amount not disclosed upfront.
• Traditional fixed-rate CDs are also available but at lower rates for longer terms.

Common Questions