One of the biggest topics in finance recently has been how the coming Federal Reserve interest rate hike is likely to cause harm to many stocks in the market. However, one thing that most analysts seem to be missing is that there are some stocks that are likely to benefit greatly from a rate hike. I know, it sounds pretty unorthodox, but it is true! For example, one of the stocks that stands to gain the most due to a rate hike is Bank of America. Today, we'll talk about why the Fed is raising rates and when it's likely to happen. We'll also talk about why this event is likely to be a major catalyst for Bank of America (BAC). So, let's get right to it…

Why The Federal Reserve Plans To Raise Interest Rates

To understand why an interest rate hike is on the way, it's important to understand where interest rates are today and how they got there. During the financial crisis of 2008 and 2009, the United States Federal Reserve reduced its interest rate to an all time low of 0.25%. The goal in reducing the interest rate was to make it so that consumers could pay less interest on loans; leaving more money available to spur economic growth. However, we all knew that this reduction was short term. When the United States economy became healthy enough to stand on its own, the Federal Reserve would increase its interest rate; bringing things back to normal.

Well, the economy in the United States is looking great; at least when considering the factors the Federal Reserve was looking for. As a result, the Fed is ready to start increasing its interest rate; announcing that it plans to do this by the end of 2015. Most experts are expecting 2 interest rate hikes throughout the end of the year; with the first happening in September. Because of higher interest rates, consumers will spend more to borrow money; which will indeed have a negative affect on the market overall. However, as mentioned above, this may be a huge boost for Bank of America.

How Bank Of America Will Benefit When The Fed Increases Interest Rates

To understand how this will be beneficial, it's important to look at how Bank of America themselves make money. While Bank of America does have an investment arm; the vast majority of the company's business is in consumer accounts. This majority is built up, for the most part, of consumer credit cards and other loans. The way Bank of America makes money on these loans is through charging interest on them; primarily adjustable interest. This means that when the Federal Reserve increases their interest rates, Bank of America is likely going to increase their interest rates as well; charging a multiple more than the increase of the Federal Reserve. Ultimately, this will lead to more profits for Bank of America and investor excitement. So, the stock is likely to climb.

What To Watch For

Considering that the interest rate increase from the Federal Reserve is likely to send Bank of America stock on a strong uptrend, it's going to be incredibly important to keep a close eye on the movements of the Federal Reserve. Buying call options as soon as the interest rate is increased is most likely going to be a very profitable proposition. So, when we get more clarity with regard to when the interest rate is to be increased; be prepared to take advantage of the trends. Also keep in mind that many other consumer banks and finance companies are likely to gain big…so, this will be the time of opportunity.