Bank exchange-traded funds (ETFs) are investment vehicles that pool investors' money to allocate to a portfolio of bank stocks. Bank ETFs allow you to invest in bank stocks without having to choose which individual banks to buy.
The banking industry can be an exciting place to invest, but the industry isn't without its risks. There have been several major banking crises throughout modern history, and banks can be sensitive to economic downturns. This can make investing in individual bank stocks seem scary to the average investor.
Fortunately, there are excellent exchange-traded funds (ETFs) that can give you exposure to bank stocks in your portfolio. In this article, we'll explore some of the top choices.
Five top bank ETFs for 2026
There are numerous bank- and financial-sector ETFs available on the market. Here's a list of five of the top bank ETFs that offer exposure to bank stocks in different ways, with low investment fees.
1. Financial Select Sector SPDR ETF
With about $52 billion in assets under management, the Financial Select Sector SPDR ETF (XLF -0.60%) is the largest ETF focused on the financial sector. It tracks an index of financial sector companies in the S&P 500 and holds 76 stocks in its portfolio.
NYSEMKT: XLF
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Like most index funds, this is a market-cap-weighted fund, meaning larger companies carry more weight in the index. It's important to note that while banking is a large component of the ETF's holdings, the financial sector also includes insurance companies, financial services firms, and other businesses.
For example, the top holding is Warren Buffett's Berkshire Hathaway (BRK.A +0.16%)(BRK.B +0.18%), which is technically classified as an insurance company. Other top holdings are JPMorgan Chase (JPM -1.36%), Visa (V -0.78%), Mastercard (MA -1.09%), Bank of America (BAC -2.73%), and Wells Fargo (WFC -3.90%).
The Financial Select Sector SPDR fund is also one of the lowest-cost ways to invest in the financial sector, with a 0.08% gross expense ratio. This represents a remarkably low investment cost, translating to just $0.80 in annual investment expenses for every $1,000 invested.
Before we go on, it's worth noting that an expense ratio isn't a fee that you pay directly. Instead, it's reflected in the ETF's performance over time.
NYSEMKT: KRE
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NYSEMKT: IYF
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The ETF has a 0.38% expense ratio, which should certainly be taken into account. Top holdings include Berkshire Hathaway, JPMorgan Chase, Bank of America, Wells Fargo, and Goldman Sachs (GS +1.15%).
For example, the top holding, Morgan Stanley, makes up 8.5% of the ETF's portfolio. The next-largest, Bank of America, accounts for about 8.1%. Other top holdings include JPMorgan Chase, Goldman Sachs, and Wells Fargo.
The Invesco KBW Bank ETF has a 0.35% expense ratio, which is typical for a subsector-type ETF like this one. If your goal is to simply invest in a portfolio representative of the U.S. commercial banking industry, this could be the best ETF choice for you.
How to buy bank ETFs
The process of investing in bank ETFs is pretty straightforward:
- Open your brokerage account: Log in to your brokerage account where you handle your investments. If you don't have one yet, take a look at our favorite brokers and trading platforms to find the right one for you.
- Search for the ETF: Enter the ticker or company name into the search bar to bring up the stock's trading page.
- Determine the number of shares to purchase: Consider your investment objectives and the percentage of your portfolio you wish to allocate to this ETF.
- Select order type: Choose between a market order to buy at the current price or a limit order to specify the maximum price you're willing to pay.
- Submit your order: Confirm the details and submit your buy order.
- Review your purchase: Check your portfolio to ensure your order was filled as expected and adjust your investment strategy accordingly.
Benefits and risks of investing in bank ETFs
Like any investment, there are pros and cons to investing in bank ETFs. Here are some key considerations for investing.
Benefits of bank ETFs
- Diversification: Any of the bank ETFs on this list will spread your money across many bank stocks. So, if one bank performs particularly poorly, it won't be devastating.
- Lots of choices: You can focus on the big banks, regional banks, a broad spectrum of banks, or the entire financial sector.
- Easy to manage: With ETFs, you don't have to regularly do stock research, rebalance your portfolio, or do any other homework.
- Income: Many bank stocks pay dividends, and bank ETFs pass these through to investors.
Risks of bank ETFs
- Cyclicality: Bank stocks can be economically sensitive. During recessions, loan demand declines, and more people struggle to repay their debts.
- Fees: Some bank ETFs have very low fees, but they should still be considered. After all, if you invest directly in bank stocks, you don't have any management expenses.
The bottom line
As you've seen, there are several excellent bank ETFs, and this wasn't an exhaustive list -- there are many more. The best bank ETF for you depends on your investment objectives and goals.
If you simply want financial sector exposure in your portfolio, one of the broad ETFs is generally the best (and lowest-fee) way to go. But if you want to invest for a more specific purpose -- for example, let's say you think falling interest rates will be especially good for regional banks -- a more specialized bank ETF could be a better option, even if it has a somewhat higher fee structure.
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FAQ
Bank ETF FAQ
About the Author
JPMorgan Chase is an advertising partner of Motley Fool Money. Bank of America is an advertising partner of Motley Fool Money. Wells Fargo is an advertising partner of Motley Fool Money. Matt Frankel, CFP has positions in Bank of America and Berkshire Hathaway. The Motley Fool has positions in and recommends Berkshire Hathaway, Goldman Sachs Group, JPMorgan Chase, Mastercard, Truist Financial, and Visa. The Motley Fool has a disclosure policy.
