Top 7 Bank Stocks to Buy Now: December 2024 Picks for Maximum Profit!

When it comes to bank stocks, the landscape is a mixed bag. Yet, with interest rates at a premium and the stock market soaring, 2024 is shaping up to be a magnificent year for bank equities. As it stands, the S&P 500 Financials Sector Index has surged over 30% this year, signaling a prime opportunity for savvy investors.

Check out our exclusive list of the seven top-performing bank stocks in the S&P 500 index, ranked by their impressive one-year performance.

Data current as of market close on November 29, 2024, provided for informational purposes only and not intended for trading. 

Bank stocks are essentially shares in financial institutions such as JPMorgan Chase, Wells Fargo, and Bank of America. They can be categorized based on various factors like the size of the bank or the core business they engage in.

» Curious for more insights? Dive into our comprehensive guides on banks and stocks.

• National banks manage over $100 billion in assets and typically operate across the entire United States.

• Regional banks handle between $10 billion and $100 billion in assets and may focus their operations on specific states or regions.

• Community banks manage less than $10 billion in assets, often serving localized areas or specific metro regions.

• Investment banks primarily serve large entities like publicly traded companies and governments. They offer services like wealth management and assist with mergers and IPOs. Their success often mirrors the stock market’s performance.

• Commercial banks focus on smaller businesses, providing essential services like business loans and accounts. Their performance tends to be influenced by interest rates—higher rates can lead to increased profits from loans—as well as overall economic conditions.

• Retail banks cater to individuals, offering services like checking and savings accounts, credit cards, and sometimes financial advice. Their performance, much like commercial banks, largely hinges on interest rates and economic conditions.

It’s worth noting that many large national banks, including JPMorgan Chase, Bank of America, and Citigroup, operate across these categories, blending investment, commercial, and retail banking.

Investing in bank stocks can be enticing, especially in a high-interest environment. However, it’s vital to consider both the advantages and potential pitfalls involved.

• Higher interest rates can benefit commercial and retail banks: These institutions primarily earn through lending, so increased rates equate to greater profits.

• Most banks offer dividends: Consistent dividend payouts are often viewed as robust indicators of financial health, making bank stocks appealing for income-seeking investors.

• Ethical considerations: For those looking to align investments with personal values, bank stocks can be challenging. Many major banks have ties to fossil fuels and weapon manufacturers, and some have faced scrutiny for unethical practices.

• Investment banks struggle in bear markets: These banks thrive in bullish environments, but when the market dips, corporate spending often contracts, impacting their revenues.

• Regulatory challenges: Following the 2008 financial crisis, new regulations were established that can limit dividend increases and stock buybacks during economic downturns. This was evident during the 2020 recession.

Ready to dive into the world of investing? Start by opening a brokerage account— your gateway to purchasing investments. This account is a necessity for making stock trades.

Next, decide if you’d prefer to invest in individual bank stocks or opt for bank exchange-traded funds (ETFs). ETFs bundle multiple stocks into one investment, allowing you to diversify your holdings without needing to buy each stock separately.

While investing in individual bank shares can yield high returns, it comes with higher risks. Concentrating too much of your portfolio in one stock could lead to significant losses if the bank experiences management issues or regional economic instability. Diversifying your investments by including broad-market options like S&P 500 index funds is often recommended by experts.

Additionally, investing in several individual stocks can require a larger initial investment.

Financial advisors typically suggest limiting individual stocks to about 10% of your total portfolio and conducting thorough research before making any purchases.

Another strategy is to invest in bank ETFs, allowing you to acquire shares in multiple banks simultaneously. This approach provides diversification and is often more cost-effective than purchasing individual bank stocks.

There are various bank ETFs tailored to different segments of the financial sector. For example, if you’re interested in national banks with investment operations, look into financial sector ETFs that primarily feature prominent Wall Street institutions. For regional commercial and retail bank exposure, explore regional bank ETFs.