Many consumers are being misled as to the safety of high-interest retail repurchase agreements sold by banks and savings and loan associations.

Institutions market these agreements under a wide variety of names, with terms like "ready money," "money account" and "money management" in the title. In the trade, they are known as retail repos. Some of them are being properly advertised, but others aren't.

Bank and S&L customers seem to know that retail repos are not covered by federal deposit insurance. But they understand them to be backed by U.S. government securities, which sounds just as safe as government insurance. Many advertisements for retail repos have actively encouraged people in this illusion. And it is an illusion.

Imagine the surprise of customers holding $353,000 worth of retail repos at the Mount Pleasant, Iowa, Bank and Trust Co., which failed recently. The customers thought -- and the bank said -- that their investments would be paid out of government securities if the bank itself did not pay. The Federal Deposit Insurance Corp., however, has ruled that under the requirements of Iowa law, these repos were not in fact backed by government securities.

This question is now in an Iowa court. If resolved against Mount Pleasant's repo holders, they stand to lose a good deal of their money.

It is hard to generalize from the Mount Pleasant situation because of the confused legal situation surrounding repos. Some banks and S&Ls are doubtlessly securing repo holders properly; others aren't. Some are clearly disclosing the risks; others aren't. Some institutions are sound enough to repay repo holders without any trouble; others aren't. But how is the average customer to know?

The banker-salesmen who sell repos to the public are seldom well informed about the product's legal niceties. In fact, they may respond to your detailed questions with some impatience. But it's the legal niceties that will get your money back, if the bank or S&L goes broke.

Many savers and investors are willing to take a risk, if it means a higher interest rate on their money. Such a choice is up to them.

But cautious depositors who put safety first may also be buying repos because they do not understand the risks. These are the people who need better protection than they are currently getting from the state and federal agencies that supposedly supervise banking institutions.

If safety is your primary goal, the following words in a bank and S&L advertisement should flash a warning sign:

1. "Guaranteed." The ad may claim that repayment is unconditionally guaranteed by promise-'em-anything S&Ls. That promise means only that you get paid as long as the S&L stays in business. If it goes out of business, you do not get paid. So much for the guarantee.

2. Repos "backed by government securities." Maybe they are and maybe they aren't. Your repos are backed, as advertised, only if the agreement specifically states that your interest in the government securities has been "perfected"--legalese for legally secured. It must also state that the securities are being held for your benefit by an independent custodian or trustee.

Furthermore, the laws of your state must permit a bank or S&L to set aside securities for the exclusive protection of repo holders if the institution goes broke. You may be surprised to learn that it's not entirely clear that all states have such laws. The American Bankers Association is undertaking a state-by-state survey to clarify this issue.

Under federal regulations, institutions are supposed to secure your interest in the government securities backing repo investments, insofar as it's possible under state law. This rule applies to federally chartered institutions and to state institutions that carry federal deposit insurance.

If the rule is followed, repo investors should be relatively safe in most states. You could still lose some money in an insolvency, but a true, perfected interest in government securities should prevent you from losing a lot.

The safest repos are those bought from institutions strong enough to repay, without fail, from their own funds. Your bank or S&L should give you a statement of its financial condition. In general, you are looking for an institution whose capital (possibly called retained earnings, retained surplus or shareholder's equity) is 2 percent or more of total assets, according to Ronald Mandle of the brokerage firm of Paine Webber Mitchell Hutchins.

A sound bank or S&L is its own guarantee; a weak one is an invitation to disaster.

Correction: My column of Sept. 16 stated that under the new tax law, no tax withholding would apply to interest and dividend payments of $150 a year or less. This rule applies only to interest payments. Taxes will be withheld on small dividend payments.