News is scary, but deposits are safe

Q: I'm 26, and I have a checking, savings and Roth IRA account at a bank that is on one firm's bank watch list.

I found this firm on the Internet, and I don't know how reliable it is, but I don't want to lose my savings. Every time I listen to a news report, I get more and more worried.

I'm going to move my checking and savings accounts to another bank, but I'd like to know whether my Roth IRA needs to be taken out, too. I've read that money in a retirement account is safer than if it were in another type of account. I'd like to leave it there if that is true so I don't have to go through the hassle of cashing out my Roth, which I just opened and funded last month. If I cash out the CD in my Roth, I'll pay a slight penalty, but I'm willing to do so if that will keep me from losing money if the bank doesn't survive. Should I move my Roth or can I leave it there?

A: Congratulations on having the wherewithal to save at such a young age. I can't blame you for being worried about your money. The financial markets have everyone spooked, and the media is doing its best to fan the flames.

You may not need to move any of your accounts.

Deposits that are payable in the U.S. are protected in the event of a bank failure if the bank is a member of Federal Deposit Insurance Corp. Deposits received by an insured financial institution in its usual course of business are insured.

This includes, but is not limited to, certificates of deposit and checking and savings accounts. In general, insurance coverage is limited to deposits of $100,000 or less. On Friday, however, Congressional lawmakers a finanical bailout bill, which temporally raises the FDIC insurance cap to $250,000 for non-retirement accounts. The bill will also temporarily increase the level of federal insurance for credit union savings to $250,000.

Beyond the temporary increase, there are ways to insure amounts more than maximum in nonretirement accounts. You can make deposits in several different FDIC-insured institutions, make deposits in different categories of legal ownership or do both. The type of account has no bearing on the amount of insurance. You can't increase the coverage by spreading your funds among checking, savings, CDs or other forms of deposits within the same financial institution.

If you want to maximize coverage using different categories of legal ownership within one financial institution, the most common categories of ownership are single, joint and testamentary. Single or individual accounts are owned by one person including those in the owner's name, established for the benefit of the owner by agents, nominees, guardians, custodians or conservators.

All single accounts held at one institution are added together, and the total is insured up to a temporary maximum of $250,000. You can name beneficiaries on your accounts through an informal trust known as a payable on death designation.

Coverage is also increased if an account is a joint account. Joint accounts are insured separately from individual accounts if all of the following conditions are met:

* All co-owners must be natural persons. That means corporations, partnerships and other legal entities are not eligible for joint account deposit insurance coverage.

* Each co-owner must have an equal right to withdraw funds.

* Each co-owner must have signed a deposit account signature card.

The third requirement is not needed for jointly owned CDs, deposit obligations evidenced by a negotiable instrument or accounts maintained by an agent, nominee, guardian, custodian or conservator. Each person's share of the account is deemed equal unless otherwise stated on the deposit account record. The interests of each individual in joint accounts he or she owns at the same FDIC-insured depository institution are added and insured up to the temporary $250,000 maximum.

At your age, when the CD in your Roth IRA matures, you might consider a more aggressive investment.

Consider a no-load mutual fund containing stocks and bonds, such as the Fidelity Balanced fund or T.Rowe Price Capital Appreciation fund. A balanced fund gives you some exposure to stocks while providing stability from the fixed-income portion of the investments.