Best Bank Stocks: January 2023

Rising interest rates are generally bad news for the stock market, as the last year has shown. But some bank stocks have bucked the downward trend. 

Why? It has to do with the different types of bank stocks — and the pros and cons of investing in them. 

Bank stocks are fractional ownership shares of financial institutions that hold and lend money. 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 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 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.   

Below is a list of the 25 best-performing bank stocks on the major U.S. stock exchanges, ordered by one-year performance. 

Stock data may be delayed and is intended for informational purposes only, not for trading purposes. 

Bank stocks, like the ones shown above, might look particularly appealing as interest rates rise and major stock market indexes fall. But it’s important to understand that they have unique downsides as well as unique upsides. 

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

• Stability: Investment banks tend to be large, blue-chip companies, while commercial and retail banks are generally subject to reserve requirements and deposit insurance requirements from the government. Banks do suffer downturns and even go out of business sometimes, but they’re typically more stable than, say, technology stocks. 

• 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. 

• 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. 

If you’re totally new to investing and you’re interested in buying bank stocks, the first step is to open a brokerage account. 

Shares of specific banks can be powerful moneymakers: Many bank stocks on the list above have outperformed the S&P 500 by a wide margin over the last year. 

However, 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. 

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. 

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.