What to Do When a Certificate of Deposit (CD) Owner Dies

Why is that we always get stuck with the short end of stick when banks mess things up?

A perfect example is Arizona's KPHO's story on Rosemarie Braunstein, a widow who recently found her late husband’s $18,000 paper certificate of deposit (CD) from 1984 that Wells Fargo refused to honor because they had no record of the CD having existed through a bank that it acquired in 1996.

Braunstein’s predicament again shows us that we as the customers need to better protect ourselves and that there are always smarter banking lessons to be learned — particularly when it comes to handling CDs upon the accountholder's death.

1. Always open mail from your bank

When Braunstein took her CD to withdraw the money, Wells Fargo didn’t honor it because the bank has no record of it. But, the paper CD states that the CD must be surrendered at the time of redemption.

So who’s in the right here?

Braunstein insists the CD was not redeemed.

Meanwhile, Wells Fargo said that First Interstate Bank of Arizona offered an option for customers to keep the paper CD if they signed a form upon withdrawal.

I would question why the bank didn’t at least mark paper CDs to denote that they have been cashed out.

Lesson: When your bank becomes another bank, rarely does the transition come without some sort of notice.

You should always be on the lookout for bank notices in the mail.

You can argue that the amount of snail mail being sent from your bank is annoying, but you should still at least open the envelope for a quick peek before tossing it out.

Usually, a letter in the mail will inform you of the changes that are coming to your account.

When the letter arrives, take the time to review all the accounts that you have with the bank so that you can decide whether to leave it as is or to move it to another account that is easier for you to track.

2. Track your own money

Braunstein only found her late husband’s CD after she was digging through her kids’ birth certificates and immunization records.

While it may not be a bad idea to keep the paper CD with other important paper documents, she should have kept a record of it somewhere else so she would know to check up on it from time to time.

Lesson: You share the responsibility of ensuring that your bank accounts don’t get lost in the fray.

After all, no one should care more about your money than you.

I’ve always been a big proponent of personal financial management tools like Mint.com to monitor all my financial accounts, from savings to credit cards to IRAs.

Back when the popular online bank ING Direct was acquired by Capital One (and became Capital One 360), Mint alerted me that it could no longer pull my account information.

I was receiving email notifications of the upcoming changes but Mint told me that the account has actually been moved.

Then, I just added the newly converted account to my Mint account again and I’m once again keeping an eye on all my accounts. (Although I recommend Mint, many other free money management tools -- such as Empower and Check -- will do the trick.)

Today, thanks to many digital tools out there, it has become very easy to stay on top of your finances. You have it much better than Braunstein did, so you should use these money management tools that are at your disposal.

3. Know what happens upon death

Normally, there's a process that occurs with CDs when the account holder dies.

In Braunstein's case, it may have just been forgetfulness that led her to leave the CD untouched for so long without going through this process after her husband passed away.

But, you should still learn the actions that you can take whether you are the owner or the beneficiary of a CD.

Lesson: It may sound grim, but you have to understand what happens to your financial accounts -- and those of your loved ones -- in the event of death.

Most banks allow you to designate someone as the beneficiary to a CD account.

Depending on the bank's policy, the beneficiary may be able to maintain the CD under his or her name.

Otherwise, the CD can be redeemed by the beneficiary with no early withdrawal penalty (most CDs will penalize you for taking your money out before the maturity date).

Left alone, however, the CD will live its life under the terms of the account -- which brings us to the next lesson.

4. CD terms can change

For those who don’t know how CDs work: it is a deposit account that you put money in, and agree not to withdrawal for a certain period of time.

In return for that commitment, you tend to earn an interest rate that is higher than a savings account.

The initial terms of Braunstein’s CD state that it earns a 10.9 percent interest rate under a 6-month term.

It was set to renew automatically.

Braunstein and her lawyers estimate that the CD is now worth more than $400,000.

That’s an average annual return of 10.9 percent -- something that we could only fantasize about in today’s low-rate economy.

Wells Fargo, on the other hand, estimates that the CD is worth around $60,000 -- an average annual rate of return of 4.0 percent (still a respectable return for such a low-risk investment).

Lesson: It’s possible that a CD remains active and continues to accrue interest over many years.

However, knowing how banks can flip the switch, you should be on the lookout for changes to the CD.

It's easy to miss them over a long time frame and through several bank mergers, as in Braunstein's case.

For instance, when a CD renews, it doesn’t renew at the initial rate. The renewed CD usually takes on the rate offered to everyone else at the time of renewal.

So, it is unlikely that the CD is worth $400,000 today because CD rates have dropped since 1984.

In a different scenario, the bank could have changed the terms on the CD (at some point during the 30 years) so that it no longer renewed automatically.

Braunstein could be left with less $60,000 if that was the case.

Nonetheless, the CD is worth a good chunk of change.

Braunstein is actually facing foreclosure on her home, so the money from the CD would come in very handy.

A court decision is slated for January of next year.

Regardless of the outcome, the story serves a good reminder to all of us to stay diligent with our money and financial accounts.