(Reuters) -Bank of America reported a drop in third-quarter profit on Tuesday, as its income from customer interest payments shrank.

Banks have been paying out higher interest rates amid intense competition for deposits to prevent customers from fleeing to lucrative alternatives such as money market funds.

BofA's net interest income (NII) - the difference between what a bank earns on loans and pays out on deposits - fell 3% to $14 billion in the third quarter.

The earnings contrast with rival JPMorgan Chase and Wells Fargo, whose results last week surpassed expectations.

Shares of the bank dipped 0.3% in premarket trading.

BofA's provision for credit losses increased to $1.5 billion in the quarter from $1.2 billion a year earlier.

Higher interest rates are pressuring borrowers and increasing risks of defaults, prompting banks to build bigger provisions for cover for such loan losses.

Meanwhile, Wall Street has been bolstered by a rebound in activity in recent months as improving confidence spurred clients to issue debt and equity.

A revival in mergers and acquisitions has also boosted advisory fees, while the Federal Reserve's interest rate cut last month could spur even more dealmaking.

BofA's investment banking fees jumped 18% to $1.4 billion versus a year earlier.

Last month, Moynihan said he expected investment banking revenue to be broadly steady.

The second-largest U.S. bank's net income fell to $6.9 billion, or 81 cents per share, it said on Tuesday. That was down from $7.8 billion, or 90 cents per share, a year earlier.

(Reporting by Arasu Kannagi Basil in Bengaluru; Editing by Anil D'Silva)