A Guaranteed 1.73% or a Growing Dividend? The Choice Facing Income Investors
A bank will lock in your rate and hand back every dollar at maturity, while an industrial distributor has raised its quarterly payout three times in the past year alone. Which promise holds up better depends on a tax detail…
The national average yield on a 12-month certificate of deposit, as reported by the FDIC, was 1.73% APY as of September 1, 2026, the latest monthly reading. That figure came out before the Federal Reserve raised the upper bound of its target range to 4.00%, where it stood on October 15, 2026. This edition sets that guaranteed rate against Fastenal (NASDAQ:FAST | FAST Price Prediction). The industrial distributor declared a $0.26 quarterly dividend on October 13, 2026, one day before it reported third-quarter earnings.
How a CD Works, From Locked Rate to Maturity Day
A CD is a time deposit. You leave a set sum with a bank for a fixed term, and the bank pays a stated rate for that whole term. When you open the CD, your rate is fixed. If the Fed raises or cuts rates later, the rate on a CD you already own stays the same.
Shopping around matters. The 1.73% figure is a national average for 12-month CDs under $100,000, and it serves as a baseline. Online banks often advertise rates well above it. For context, the 52-week Treasury bill had a yield average of 4.49% on October 14, 2026.
At maturity, you get your principal back plus the interest it earned. Many banks then give you a short grace period, and if you do nothing they roll the money into a new CD at the rate they offer that day. This is reinvestment risk. A one-year rate is guaranteed for one year only, and if rates have fallen by maturity, your income drops when you renew. The policy rate shows how quickly this can change. The Fed’s upper bound is up 0.25% from a month ago but down 0.25% from a year ago.
Getting your money out early costs you. Banks charge an early-withdrawal penalty, usually a set number of months of interest, and on a young CD that penalty can cut into principal. Brokered CDs purchased from a broker work differently. You sell them on a secondary market, so if yields have rose since you bought, you may get less than you paid.
FDIC insurance covers $250,000 per depositor, per FDIC-insured bank, per ownership category. Any funds above that limit at the same bank, in the same ownership category, are uninsured. The coverage applies only when the issuing institution is FDIC-insured. It protects you if the bank fails. It does nothing about inflation eating into the purchasing power of a fixed payment.
Fastenal’s Dividend Versus a Locked CD Rate: Safety Comes First
A higher yield is a worse deal if the payment is at risk, so start with dividend safety. Fastenal paid $1,004.2 million in dividends in 2025, which was 79.8% of that year’s net income. This heavy payout leaves only a small buffer if profits shrink. The company is also cyclical. Heavy manufacturing makes up approximately 45% of sales, and demand tracks factory and non-residential construction activity.
Right now, the numbers support the payment. Third-quarter revenue was $2.46B, up 15.5% year over year, and net income rose 19.7% to $401.6M. Free cash flow was about $350 million, or 87% of net income, and cash dividends for the quarter amounted $298.2 million. Chief Executive Jeff Watts said on the October 14, 2026 call, “We gained share, expanded margins, generated strong cash flow, and improved returns.”
On the downside, Fastenal’s board can cut or suspend the dividend in any quarter. A CD’s stated rate cannot be reduced during its term. An income stock offers no guarantee comparable to that.
On the upside, a fixed CD rate can never rise, and Fastenal’s dividend has. The quarterly payment went from $0.22 in October 2025 to $0.24 in January 2026 and $0.26 in July 2026. Trailing 12-month dividends were $0.96 per share, and the forward annualized rate is $1.04. Older records show a drop from $0.44 to $0.22 in 2025. The drop reflects the company’s 2-for-1 stock split in 2025, which doubled the share count.
At a share price of $51.90 in early trading on October 15, Fastenal’s starting dividend yield is roughly in line with the national-average CD and well below short-term Treasury bills. Buyers are paying for the chance that the payment keeps growing, and they take on price risk to get it. The stock is up 31.45% year to date, and a stock that can rise that much in nine months can also fall sharply. A CD held to maturity at an insured bank, within the coverage limit, returns its full principal.
Tax Treatment Often Decides Between a CD and a Dividend Stock
Interest from a CD is taxed as ordinary income at your regular federal rate, and it is generally taxable at the state level too. The IRS requires most people to report interest in the year they actually or constructively receive it, which includes interest credited to the account that you could withdraw. For a CD longer than one year, you must include in income each year a part of the total interest due, even if the bank pays nothing until maturity. You owe tax on money you haven’t received yet.
Qualified dividends get better treatment. Under 26 U.S.C. § 1(h)(11), qualified dividend income from domestic corporations such as Fastenal qualifies for the lower preferential rates. To qualify, you must hold the shares for more than 60 days during the 121-day period that starts 60 days before the ex-dividend date, a holding-period test tied to section 246(c). Fastenal’s next ex-dividend date is October 28, 2026.
Retirees have two more things to consider. CD interest can increase the portion of a retiree’s Social Security benefits that falls into the taxable zone, and dividend income counts toward that calculation too. And inside a traditional IRA, the tax difference goes away, because withdrawals face regular income tax rates no matter what produced them.
Who Each Option Suits
A retired person who needs a known dollar amount on a known date, keeps deposits within FDIC limits, and accepts that the rate resets at maturity is better suited for a CD. Fastenal suits an investor with a long horizon who can handle swings in the share price and a dividend that depends on the industrial economy, in exchange for income that has been growing. Holding these assets outside a tax-advantaged account leans the comparison toward qualified dividends. An IRA removes the tax difference and leaves safety and growth to decide it. For readers trying to live off the checks without ever selling a share, we laid out how to build that kind of dividend ladder in a free guide.
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Chris Lange is a financial and geopolitical writer with more than a decade of experience covering a myriad of topics. He has published thousands of articles for 24/7 Wall St., with past coverage focused heavily on stocks, IPOs, healthcare, defense, global affairs, and technology.
His work has been quoted, or referenced by a number of outlets including Business Insider, USA Today, Yahoo Finance, MSN, The Motley Fool, and many other publications. A graduate of Southwestern University, he studied business with a focus on investments and has previous experience in banking and startups.
When not reading or writing the news, he is following his passion for Lacrosse, playing chess, or building solar projects with his dad.
