Bank of America's Deposit Franchise Is the Hidden Asset Investors Keep Missing
Key Points
Bank of America’s consumer deposits now total $951 billion, providing a cheap source of funding.
Should interest rates rise, the business will likely keep posting growing net interest income.
The bank stock’s current valuation introduces a compelling entry point.
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Bank of America (NYSE: BAC) is one of the world's largest financial institutions. As of March 31, it had $3.5 trillion in total assets on its balance sheet, a truly massive sum. The business has its hands in all areas of the broader industry.
Investors might be drawn to the bank stock because it has Warren Buffett's endorsement. The Oracle of Omaha oversaw the purchase of Berkshire Hathaway's significant stake in Bank of America, with the conglomerate owning 7.2% (almost 514 million shares) of the financial institution.
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But Bank of America's bull case is more about its deposit franchise. This is a hidden asset that investors might be overlooking.
Image source: The Motley Fool.
Low-cost funding creates an advantage
This company has a sizable and sticky customer deposit base. As of March 31, which is when the first quarter of 2026 ended, Bank of America had $951 billion in consumer deposits. This figure was up 0.3% year over year, marking the fourth straight quarter of growth. The business has the top market share in U.S. consumer deposits.
Customers might have multiple products and accounts, which means huge switching costs that make them less likely to leave for competitors. What's more, Bank of America's deposit base benefits from having a "high-quality mix, with over half of balances in low and no-interest checking," according to chief financial officer Alastair Borthwick.
Bank of America estimates that 91% of its checking account customers use these as their primary accounts. This adds to their stickiness, as these are likely intended for transactional purposes that don't cost the business much.
This setup is what all banks strive to achieve. That's because it introduces a cheap source of funding that can be used to fuel loan growth.
The average yield that Bank of America pays on its consumer deposits, 0.51%, is tiny. It's down 10 basis points from a year ago. This creates a structural advantage that supports the bank's success across various interest rate scenarios.
Bank of America's net interest income increased 9% in Q1. I suspect that if interest rates move higher, this metric will keep rising.
Should you buy Bank of America stock right now?
Having a robust deposit franchise is a key asset aiding in Bank of America's staying power. Consequently, the business is in a good position to navigate different macroeconomic environments.
This is one of the main reasons the stock is worthy of investment consideration, particularly for market participants looking to allocate capital to the financial sector. It also helps that shares are trading at a price-to-earnings ratio of 12.7, which is in line with the trailing-five-year average.
Should you buy stock in Bank of America right now?
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Bank of America is an advertising partner of Motley Fool Money. Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.
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