7 Best-Performing Bank Stocks: December 2024

Bank stocks have their pros and cons. But with both high interest rates and the stock market in a strong position, its been a good year for bank equities.

Best bank stocks by one-year performance

Below is a list of the seven best-performing bank stocks in the S&P 500 index, ordered by one-year performance. 

Source: Finviz. Data is current as of market close Nov. 29, 2024, and is intended for informational purposes only, not for trading purposes.

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What are bank stocks? 

Bank stocks are stocks that represent shares in banks, such as JPMorgan Chase, Wells Fargo and Bank of America. There are a few different ways to categorize bank stocks, such as the size of the bank or its core business. 

» Want more detail? Check out our primers on banks and stocks

National, regional and community banks

• National banks manage more than $100 billion in assets and typically have operations throughout the United States.

• Regional banks manage between $10 billion and $100 billion in assets, and they may restrict their operations to specific states or other geographic areas.

• Community banks manage less than $10 billion in assets, and they may have operations in only one specific metro area or part of a state. 

Investment, commercial and retail banks

• Investment banks cater to publicly traded companies, governments and other large institutions. Their services include wealth management and help with mergers and initial public offerings, or IPOs. Their performance is often tied to the stock market.

• Commercial banks cater to smaller companies. Their services include business accounts and loans. Their performance tends to be related to interest rates (higher rates can mean higher profit margins on loans), and to the overall strength of the economy.

• Retail banks cater to individuals, providing services such as checking and savings accounts, credit cards and sometimes personal financial advice. Like commercial banks, their performance largely depends on interest rates and economic conditions. 

The lines between these categories are sometimes blurred. Many big national banks — like JPMorgan Chase, Bank of America and Citigroup, the three largest in the U.S. — have investment banking, commercial banking and retail divisions.   

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Pros and cons of investing in bank stocks 

Bank stocks, like the ones shown above, might look particularly appealing when interest rates are high, but it’s important to understand that they have unique downsides as well as unique upsides. 

Pros of bank stocks

• Commercial and retail banks like higher interest rates: Noninvestment banks make most of their money by lending. Higher interest rates mean more lending income.

• Most banks pay dividends: Dividends are seen as an important signal of financial health for banks, and so the vast majority of bank stocks do pay dividends consistently. 

Cons of bank stocks 

• Values: For those looking to invest in companies that align with their values, some might have trouble with bank stocks. Many banks, especially big ones, count fossil fuel companies and gun companies among their clients. Some have even been implicated in money laundering and sanctions evasion on an international scale.

• Investment banks don’t like bear markets: Big investment banks largely serve publicly traded companies. That means they do well when the market is doing well. But when times are tough, as they are now, companies tend to tighten their purse strings. That means less revenue for investment banks.

• Regulatory risks: In the aftermath of the 2008 financial crisis, Congress passed the Dodd–Frank Wall Street Reform and Consumer Protection Act, which gives the Federal Reserve the ability to restrict bank stock dividend increases and share buybacks during times of financial stress. The Fed imposed these restrictions during the 2020 recession. 

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How to buy bank stocks

If you’re totally new to investing and you’re interested in buying bank stocks, the first step is to open a brokerage account. A brokerage account is an investment account, or where you can purchase investments from. It's not an investment itself.

Once you’ve done that, you’ll need to decide whether to buy individual bank stocks or bank exchange-traded funds, or ETFs. ETFs are baskets of stocks held together in one investment. Bank ETFs will focus on holding banks and other financial institutions.

Individual bank stocks

Shares of specific banks can be powerful moneymakers, but investing in individual stocks can be risky. If you pour a significant portion of your portfolio into an individual bank stock, you could end up with a substantial loss as a result of a few bad decisions by management, or a regional economic downturn in the case of a regional bank. That's why many advisors urge investors to diversify with broad-market investments such as S&P 500 index funds.

Buying individual stocks can also have a large upfront cost if you’re adding several to your portfolio. 

Experts say that you can mitigate these risks somewhat by limiting individual stocks to about 10% of your overall portfolio, and by carefully researching stocks before buying them. 

» Learn more about how to research stocks

Bank ETFs

Another approach is to buy dozens of bank stocks at once through a bank ETF. These provide a degree of diversification, and they're often much cheaper than buying individual shares of the banks within them. 

Different kinds of bank ETFs are available for different segments of the banking industry. 

If you’re looking for exposure to national banks with investment banking operations, consider financial sector ETFs, which largely consist of big Wall Street firms. If you’re looking for exposure to regional commercial and retail banks, check out regional bank ETFs. 

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