The Best Bank Stocks to Buy

Bank stocks are among the most obvious ways to profit from the health of the American economy.

Banks are occasionally referred to as the economy's heart (or, for the less poetic, circulatory system), pumping money anywhere and everywhere it needs to be. It's a decent metaphor.

Most of us naturally think about banks from the consumer's point of view — savings, credit cards, mortgages and the other financial products we need to get through life. But banks also carry the lifeblood of business and investment, whether that's merchant services, business loans, payroll and deposit, trading, underwriting and much more.

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Helping get a multibillion-dollar initial public offering (IPO) might have a larger impact than helping you withdraw $60 for a Shanghai dim sum joint, but it all still boils down to capital flowing through the system.

Today, let's talk about bank stocks, including how they're defined, why investors seek exposure, and how to find the best bank stocks to buy.

What are bank stocks?

From 10,000 feet, bank stocks are … well, they're stocks that represent bank companies. It's not that complicated.

However, if we want to get a bit more technical, let's talk about what the Global Industry Classification Standard (GICS) — a framework used by major index providers to help classify public companies — has to say about it.

Bank stocks are just a part of the broader class of financial stocks, which also includes other financial services, consumer finance, capital markets and insurance businesses.

Also, bank stocks themselves are broken into two subcategories:

1. Diversified banks: "Large, geographically diverse banks with a national footprint whose revenues are derived primarily from conventional banking operations, have significant business activity in retail banking and small and medium corporate lending and provide a diverse range of financial services."
2. Regional banks: "Commercial banks, savings banks and thrifts whose business are derived primarily from conventional banking operations such as retail banking, corporate lending and originating various residential and commercial mortgage loans funded mainly through deposits. Regional banks tend to operate in limited geographic regions."

Bank of America (BAC) and Citigroup (C)? Diversified banks.

Central Pacific Financial Corp. (CPF) and Bar Harbor Bankshares (BHB)? Regional banks.

Why do investors buy bank stocks?

The heart metaphor correctly implies that bank stocks are critical to the flow of the American economy. As with the larger financial sector, you'd think that would give banks a defensive nature similar to utility stocks.

However, while some banks can be resilient, their businesses are quite cyclical, and their stocks tend to reflect this.

Banks — and especially regionals that don't have all the business arms of diversified firms — primarily make money via the interest-rate spread. Put simply: They want to charge more in interest on their products than what they pay to depositors. (A basic example: Your Local Bancorp might pay a 3% interest rate on savings accounts, but it charges a 5% interest rate on auto loans.) Interest rates, then, are an enormous piece of the profitability puzzle.

Here's where economic activity comes in.

A bank can only make so much from, say, one $500,000 mortgage. They need volume. When the economy is clicking, unemployment is low and wages are high, that spurs demand in mortgages and auto loans. That also helps usage in products such as debit cards, which generate interchange fees for a bank.

But in a recession, fewer people have the means to pay for these products — and even those who do might act more financially conservatively and put off buying a home or new car.

Not to mention, poor economic conditions also raise the likelihood that people will default on their debt, which translates into losses for the bank.

Investors also need to factor in the differences between diversified and regional bank stocks.

Megabanks might offer more stability than their smaller brethren because they're not as reliant on their commercial operations. Arms such as investment banking can provide some ballast while traditional savings-and-loans operations struggle.

The flip side? Sometimes the opposite can be true; even if a diversified bank's commercial operations shine amid a healthy opportunity, poor investment banking results could hold them back in a way that you wouldn't see in regional firms.

Regional banks can be more volatile because of this reliance on commercial business. But again, that cuts both ways — while they might not provide much defense to a buy-and-holder's portfolio, they might be a better source of short-term upside for active investors and swing traders.

Another source of potential rapid upside from regional banks: buyouts.

"Consolidation has been a positive, long-term trend for the U.S. banking industry," a Manulife Investment Management team wrote in February 2025. "Going back to 2000, the industry has averaged around 235 M&A deals a year."

That deal flow has dwindled in the past few years, but the current administration is viewed as favorable for deregulation and bank consolidation. In January, the FDIC's acting chair outlined initiatives for streamlining the process of proposed bank mergers.

"With over 4,600 banks remaining in the United States," Manulife's team writes, "there's still ample room for consolidation."

How to find the best bank stocks to buy

Now that you have an idea of why investors buy bank stocks, you might be interested in knowing what the industry has to offer.

How exactly you'd go about finding ideal opportunities will depend on your specific preferences and investment goals. But we can help you start your search for the best stocks to buy with a basic quality screen.

We've looked for bank stocks that are …

Within the S&P Composite 1500: This index is a combination of the S&P 500, S&P MidCap 400 and S&P SmallCap 600. This screen allows for stocks of different sizes, but it still represents roughly 90% of America's market capitalization, weeding out the smallest stocks.

With a long-term estimated earnings-per-share growth rate of at least 5%: Bank stocks are cyclical, so you can't expect high growth all the time. We're merely looking for a fair level of EPS growth expectations given the relative uncertainty around the economy right now.

With a trailing-12-month return on equity of at least 10%: Return on equity (RoE) can help you gauge how well a bank or other financial company generates income from shareholder capital. Any RoE above 10% is passable, though 15% to 20% is considered good.

With at least five covering analysts: We'd like to look at stocks that are on Wall Street analysts' radar, which makes it likelier that there's both more reporting and more insights on these companies. The more research we have at our disposal, the more educated a decision we can make.

With a consensus Buy rating: All the stocks must have an average broker recommendation of 2.5 or less within S&P Global Market Intelligence's ratings scale. S&P Global Market Intelligence converts analysts ratings into a numerical scale. Anything with a score of 2.5 or less is considered a Buy.

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