CDs vs Dividend Stocks: What Retirees Need to Know

A retiree comparing a federally insured CD to a dividend stock faces a crucial decision. The choice between the two often depends on a factor that most income calculators overlook.

The FDIC's national average annual percentage yield for a 12-month CD under $100,000 was 1.73% as of September 1, 2026. Top online banks, however, can offer rates 3 to 5 times higher than this baseline average, which is crucial for retirees looking to maximize their income.

A CD locks in a fixed annual percentage yield until maturity, which means that if interest rates rise after the deposit is made, the rate will not change. In contrast, dividend stocks like Johnson & Johnson (JNJ) and Procter & Gamble (PG) offer a potential for growth, but also come with the risk of a cut in payments.

Johnson & Johnson has raised its quarterly payout to $1.34 per share, marking the 64th consecutive year of dividend increases. Procter & Gamble's quarterly dividend rose to $1.0885 per share, representing the 70th consecutive annual increase and the 136th year of dividend payments since incorporation in 1890.

While CD interest is taxed as ordinary income at federal rates, qualified dividends from US corporations like JNJ and PG are generally taxed at long-term capital-gains rates. This difference in tax treatment can be a deciding factor for taxable brokerage accounts, but not for traditional IRAs or 401(k)s.