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IRA is not what it was

The next time a banker dangles an Individual Retirement Account before your eyeballs, you might look a little harder at what's being offered. Things are changing on the IRA front. And they're not all to your benefit:

Institutions are adding fees and charges to accounts. They're also restricting or penalizing your movement of funds.

President Bush's proposed Family Savings Account will impact the future of IRAs.

And by shopping around, you can earn as much as 8.78 percent on an IRA CD, instead of an average 8 percent or thereabouts.

Over the past year, institutions have been quietly slapping fees on their IRAs. These charges probably weren't there when you first opened your account, but a provision in your IRA agreement probably allows the bank or thrift to start them any time.

For example, Bank of Boston had added a $10 annual fee to all its IRAs, including CDs and money market accounts. American Savings Bank, Stockton, Calif., Glendale Federal Bank, Calif., and Coast S&L, Los Angeles, have all upped their annual fees to $10 from $7.50 on the same accounts.

More persnickety are the charges you don't find out about until you decide to move your funds. Southeast Bank, Miami, has put in place a $20 closeout fee for customers who retain no other accounts at the institution.

Bank of Boston has instituted a $25 "transaction fee," applied when withdrawals are made before the customer turns 59{. Glendale Federal has put in a $15 "premature distribution fee" to its fixed-rate and variable-rate CDs.

You can also get zapped even if you leave your money in an institution but move it around. Under federal regulations, institutions can waive the early withdrawal penalty on IRA CDs once the customer turns 59{. That's to let the account holder take distributions without paying an interest penalty. However, the bank or thrift is not obligated to do so.

Many outfits are now clamping down on savvy savers who close out their IRAs to take advantage of higher yields either at the same bank or another institution.

At Wells Fargo Bank, San Francisco, among others, customers eligible for distributions who make more than one withdrawal per year and reinvest the funds in a higher-yielding account are hit with early withdrawal penalties.

First Gibraltar Bank, Houston, has an even more complicated formula. If the customer withdraws funds to reinvest them in a higher-yielding account that pays at least 2 percentage points more than the existing account, the penalty is half the standard early withdrawal penalty. Good luck figuring that one out.

The whole future of the IRA could be swayed by what happens with President Bush's proposed Family Savings Account, part of his 1991 proposed budget. Families and individuals could earn interest tax-free provided they keep the money on deposit for seven years and meet certain income criteria.

"The Family Savings Account would be the deathblow to the IRA," predicted Glenn Miller, vice president, Federal Employees Credit Union, Atlanta. "It would offer better tax benefits, practically across the board."

Others disagree. "The Family Savings Account would be another tool for tax-sheltered savings, and it could increase awareness of the IRA," argued Roger Buechler, marketing director, Morrell Federal Credit Union, Sioux Falls, S.D.

The key is how the two accounts will be marketed by institutions. President Bush foresees his Family Savings plan being used partly for retirement, but largely to help pay for a child or individual's education. The IRA is exclusively for retirement, so banks might promote Family Savings for Joe Doaks' average accounts, and plug IRAs for pension rollovers.

If you're shopping bank accounts right now, you'll find that IRA CDs pay one-quarter to one-half of a percentage point more than regular CDs at some institutions. Here's a list of the highest federally insured yields available nationwide, according to a Feb. 13 survey by 100 Highest Yields. The outfits receive the highest three-star safety rating from Veribanc of Wakefield, Mass.:

One-year CD: Domestic Safe Deposit Co., Cranston, R.I., (800) 556-6600; paying a yield of 8.5 percent on a minimum deposit of $500, with no add-ons.

18-month CD: Bank of San Pedro, Calif., (213) 519-6334; paying a yield of 9 percent on a minimum deposit of $500, with add-ons in $100 increments.

Five-year CD: Washington Savings Bank, Waldorf, Md., (301) 870-5990; yielding 8.78 percent on a minimum deposit of $500 with no add-ons.

Latest rate trend: Hot diggity. Mortgage rates fell for the first time in two months as Bank Rate Monitor's 30-year fixed-rate average fell to 9.96 percent. Short-term CD rates were flat to lower, as BRM's ratio of rate increases to decreases narrowed slightly to 1.2-to-1.

Robert K. Heady publishes Bank Rate Monitor, 100 Highest Yields and other financial newsletters from his office in North Palm Beach.