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Useful Strategy For Retirees: Death Puts On Corporate Bonds & CDs

Saturday, April 28, 2012 - 5:08 AM
From the Wall Street Journal
A growing number of financial advisers are pointing to a little-known strategy that can help solve this problem: "death puts." Formally known as estate-feature puts, they are available on a handful of high-grade corporate bonds as well as most CDs sold through brokerages.

Death puts guarantee that when the owner of the bond or CD dies, the heirs can redeem it at face value, meaning they get back all the money that originally was invested.

Read more

For the vast majority of CDs that I've seen (those issued directly by banks), they always waive the early withdrawal penalties after the death of the CD holder. So the heirs get back not only the principal but also all of the accrued interest.
Ken TuminKen Tumin5,471 posts since
Nov 29, 2009
Rep Points: 125,634
1. Saturday, April 28, 2012 - 12:49 PM
Informative article, Ken, and thanks for finding it.    It's interesting that these "death puts" have been around since the 90's.  It's only now, when companies need more direct access to smaller retail investors, that they are being discussed more widely. 

It looks like only a limited number of issue bonds with death puts, so it might be hard to diversify and also you would likely pay a premium to acquire the bond.  I don't know if the premium would be covered by the "put". 

As far as the CDs, the article warns that many are callable.  If the institution calls the CD, the death put is worthless.  Also, as you rightly point out, institutions generally waive fees to close a CD at the death of the owner.  All in all, this is not a useful strategy for my situation, but it certainly could be appropriate for some. 

pearlbrownpearlbrown1,473 posts since
Nov 2, 2010
Rep Points: 6,404