Could FTSE 100 banks supercharge a £20,000 Stocks and Shares ISA?

The failure of Silicon Valley Bank and Credit Switzerland last month caused investors to sell bank shares first and ask questions later. As a result, all five banks in FTSE 100 lower than four weeks ago.

Does this mean you can get a superior return on your £20,000 Stocks and Shares ISA? Let’s have a look.

Great yield

Here’s how five FTSE 100 bank stocks have performed over three timescales:

	One month	A year	five years
Lloyds	-6%	+4.75%	-26.5%
NatWest	-9.75%	+14%	-6.75%
HSBC	-10.5%	+4.75%	-16.75%
Barclays	-13%	+1.5%	-28.75%
Standard Chartered	-22%	+23.25%	-13.5%

I must note that the figures above do not include dividends paid to shareholders. The payout will add several percentage points to the annual return per share.

The latest sell-off has made most of the bank stocks’ dividend yields look attractive. All but one (Standard Chartered, which is more growth-oriented) outperformed the FTSE 100 average yield of 3.7%.

	Dividend yield
Lloyds	4.9%
NatWest	5.2%
HSBC	5.0%
Barclays	5.1%
Standard Chartered	2.5%

competition

One of the biggest long-term challenges for established FTSE 100 banks is competition. This is because challenger banks and fintech rivals are everywhere these days. These include Monzo, Starling Bank, Revolut, and more.

The number of places I can deposit money today is almost endless.

However, we saw in the US recently that the banking turmoil there caused many depositors to withdraw money from small and medium-sized banks.

Who did he turn on? You guessed it – big banks.

In fact, they were inundated with requests from customers to transfer funds from smaller lenders. It is the largest movement of deposits in a decade.

I think size and reputation are still important when it comes to banks, especially in times of difficulty. And you are no more established than Barclays (founded in 1690) and Lloyds (founded in 1765).

So I am not as worried as some about the long-term future of the UK’s big banks.

Should I buy a FTSE 100 bank?

It is important to remind me that interest rates have been below normal for more than a decade. Now, due to rising inflation, they have increased significantly.

So I am confident about the prospects of the banking sector over the next few years. In theory, higher interest rates should allow banks to generate higher income.

Of course, very high interest rates are not good for banks, as borrowers may struggle to repay their loans. But I expect the rates to be in a range that will be beneficial for the banks going forward.

I certainly don’t expect it to go back to near-zero levels again. That is, not unless there is another financial crisis. While that is irreversible, I think tighter regulation and better balance sheets are inevitable.

As a result, I have put Lloyds on my watch list recently. With a dividend yield of 4.9%, I think the Black Horse bank looks in good shape to potentially provide market-beating income.

Also, I’ve been digging Standard Chartered, which is down 22% over the past month. I like exposure to growth markets such as the Middle East and Asia, where most of the revenue from.

I think both stocks can give your own ISA a major boost.