What are bank stress tests?

Consumers may not feel the need to take their money elsewhere based on the stress test results, but they should make sure their deposits are fully protected. Generally, that means staying within the FDIC insurance limit of $250,000 per depositor. But Waddell isn't a fan of consumers blindly putting their money in an institution just because it's covered by the FDIC.

"Part of the problem with the way consumers approach banks is that the government is there guaranteeing deposits so we don't have to do our own due diligence. If there's a weak bank in my local market and I have $100,000 in a checking account there, I don't care because the government has guaranteed it. There's a moral hazard, in my opinion, in the system, and that moral hazard has only gotten bigger since the FDIC raised the limit to $250,000 on deposits."

Protect your deposits

The FDIC says its Deposit Insurance Fund should be sufficient for the foreseeable future, and if by some chance additional funds are needed, it has a U.S. Treasury line of credit that can be tapped. Nevertheless, it will be interesting to see whether the FDIC's coverage limit remains at $250,000 after Dec. 31. Deposit insurance is slated to fall back to $100,000 per depositor Jan. 1, 2010. (Insurance coverage for some retirement accounts, such as IRAs, was permanently increased to $250,000 per depositor in 2006.)

Staying within FDIC limits, or National Credit Union Administration, or NCUA, limits if you're with a credit union, is paramount to protecting your deposits. There are trillions of uninsured dollars in bank accounts across the nation. The FDIC says uninsured depositors receive an average of 72 cents on the dollar when a bank fails. Can you afford to lose a quarter of your money?

There are ways to protect excess deposits. Some banks will divide your excess deposits among non-related banks within a particular network. That and several other methods are explained in "Six ideas for insuring your deposits."

The FDIC shows how to properly title your accounts so you make the most out of the available coverage. The agency also provides a calculator to determine your coverage.

To get an idea of the financial strength and stability of a particular commercial bank, savings bank or credit union, explore Bankrate's Safe & Sound database.

While the government is focusing on the nation's biggest institutions -- and propping them up when needed -- there are more than 8,000 institutions that, apparently, aren't too big to fail. Safe & Sound can show you how well an institution is faring on a quarterly basis.


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