What Is a Retail Note?

What Is a Retail Note?

5 Min.

Retail notes are a type of debt obligation issued by corporations that do not accrue interest or have added markups. When investors buy retail notes, they receive fixed interest payments until the notes mature or are called away. Retail notes are considered a simpler and more straightforward way to receive fixed-income payments compared to bonds. Typically, retail notes come with a yield premium due to an embedded callable feature. A survivor option is a common feature of retail notes, which allows the beneficiaries of the note to sell it back to the issuer at par.


A retail note is a type of debt security that is offered by corporations. You can buy them directly from the issuer in $1,000 increments, just like bonds. However, unlike bonds, they do not have any added markups or accrued interest. Retail notes are subordinated and unsecured debt, but they are often a more appealing option than bonds.

Corporate Debt: Retail Notes vs. Bonds

Within corporate finance, retail notes represent a distinct category of debt securities. These financial instruments are issued by corporations and bear several key characteristics that differentiate them from traditional bonds. Retail notes can be acquired directly from the issuing company, typically in $1,000 increments, which mirrors how bonds are obtained.

One distinctive feature of retail notes is the absence of accrued interest or additional markups. Unlike bonds, which often come with interest payments and potential markups, retail notes lack such components. This straightforward structure simplifies the investment process for individuals and institutions alike.

It is important to note that retail notes belong to the category of subordinated and unsecured debt. This means that in the event of financial distress or bankruptcy, retail note holders may find themselves in a subordinate position to other creditors, and their claims may be unsecured.

Despite these unique characteristics, retail notes have gained popularity due to their appeal as an investment option. Investors are drawn to the simplicity and direct access to these instruments, making them an attractive alternative to traditional bonds in the corporate debt market.

Exploring Retail Notes: Key Features and Benefits

Retail notes issued by corporations offer investors fixed payments throughout the note's term, much like bonds. These retail notes may fall into two categories: callable or non-callable, with the majority being callable.

Callable retail notes can be redeemed by the issuer before reaching maturity, potentially resulting in a loss of income for investors. To compensate for this risk, callable retail notes typically provide a premium yield. This added yield makes retail notes an enticing option, especially for investors willing to accept the possibility of early redemption. Moreover, many callable securities offer call protection for a defined period. An appealing aspect of retail notes is the survivor option they feature. This provision allows the beneficiaries of a retail note to sell it back to the issuer at par value when the original owner passes away.

Retail notes are offered weekly, ensuring their accessibility as investment vehicles. These offerings provide essential information about the debt, including maturity dates, interest-payment schedules, and credit ratings.

Investors can acquire retail notes directly from the issuer or through a financial intermediary like a broker. Upon purchase, investors receive fixed interest payments until the note matures. For callable notes, payments continue until a potential call event occurs.

Risk Considerations in Retail Note Investments

When considering retail notes as an investment option, it's vital to understand the inherent risks associated with their subordinate nature. Subordinated debt represents a form of loan or security that holds a lower claim on assets and earnings compared to other loans or securities. In the unfortunate event of a borrower's default, owners of subordinated debt must wait until senior debt holders are fully compensated before receiving any payments.

This lower priority status places retail notes in a riskier category when contrasted with senior debt. Nevertheless, the risk level of a retail note is heavily contingent on the creditworthiness of the issuing entity.

Take, for instance, a financially robust corporation like Apple (AAPL). Such a company boasts an exceptionally low likelihood of defaulting on its debt obligations. Consequently, subordinated retail notes issued by such entities carry minimal risk. In contrast, a company grappling with financial instability would present distinctly higher risk profiles for its senior and subordinated debt.

To assess these risk levels, rating agencies like Standard & Poor's and Moody's conduct comprehensive evaluations of companies, assigning ratings that reflect their financial health and debt repayment capability. It's essential to recognize that, as a general rule, bonds invariably hold a lower priority than senior debt in the repayment hierarchy.

Retail Notes vs. Traditional Investments

When evaluating investment options, stocks and bonds are the most prevalent choices. However, bonds can be intricate, involving multiple components like price, interest rates, yield, markups, accrued interest, and limited control over tax implications and capital gains. As a result, retail notes emerged as a compelling alternative to traditional bonds.

Retail notes are notably accessible, with frequent offerings, typically on a weekly basis. Unlike bonds, they eliminate the complexities associated with markups and accrued interest. Moreover, they offer advantageous tax benefits, such as the ability to include them in your individual retirement account (IRA). Once housed in a traditional IRA, the interest income earned enjoys tax deferral, facilitating long-term growth.


Retail notes, distinct in the realm of corporate debt, offer investors an uncomplicated alternative to bonds, marked by weekly accessibility and reduced complexities. They often include a yield premium due to the callable feature and show the survivor option.

However, their subordinate status implies higher risk, contingent on the issuer's creditworthiness. In essence, retail notes offer simplicity, accessibility, and tax benefits when included in IRAs, making them an intriguing investment alternative.

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