You should have two accounts - your operating funds and your reserves.
Operating funds should cover all normal regular expenses including insurance premium. Reserve account should hold funds for emergencies and for reserve study.
Jeff is 100% correct. Don't complicate your life. Two account and nothing more. If you are self managed (and it sound like you are)to many account offer more oportunity for monies to "get lost". An operating account and a reserve account will take care of all your needs. Build your chart of accounts and get a good accounting program and you'll be just fine. GR
One is sufficient, the two mentioned by jeff give a psychological barrier and incentive to build and protect the reserve, at least in our condo set up because the "reserve" can be accessed by the board for any reason. Maybe in some regimes it needs a vote of the owners to get at that.
To answer the question you need to first look at 2 sources. The governing documents AND your state's statutes.
Provided that your legal obligations as above are satisfied, I would suggest a minimum of 2 accounts (operating and reserve) as Jeff indicated. However, there may be some tax advantage by having a deferred maintenance account as well. A CPA familar with HOA and condominium filing may be able to provide appropriate advice.
I'm not really sure why your first 3 accounts are separate as they sound like they should be in your "operating account" since they appear to be annually budgeted items. Likewise, I would think that the last two accounts should be combined as you suspected.
The above beng said, I want to make sure that we are diffrentiating beween actual bank account vs. general ledger accounts. While my reply speaks to bank accounts, you should absolutely have as many general ledger accounts as you feel you need to control your finances.
You need 2 accounts; operating and a reserve account. The reserve account should be a money market fund or some interest bearing account. The Operating account is used for daily expenses; whereas capital improvements should come from the Reserve. Good bookkeeping dictates that 2 accounts should be had and are sufficient. Yes you should always protect the Reserve in case of any catastrophic event, i.e. a water main burst on the common areas, a sewer backup, any large expenditure that may need to be covered. If you don't have the mindset to protect the Reserve the association can go bankrupt very easily.
The advise given by most who posted comments would not fulfill the requirements of my condo Association and my State's law. You need the accounts required by YOUR state's law and YOUR Association's governing documents, not what others think they or you need.
My recommendation is in line with what has been already stated but I want to drill a little deeper.
Operating Fund - a bank account where all the bills are paid from and assessments deposited. Usually a checking account but if you pay bills electronically then anything. Now I believe the standard is to have a minimum balance to cover at least three or four months of expenses with no assessments coming in. Anything over that should be moved to one of the Reserve Funds.
Reserve Maintenance Fund - Used for capital expenses or major expenses that don't recur year after year. Examples; painting the trim, cleaning carpets... The real deal is that you don't want to skew your operating fund expenses when you plan next year's budget just because you cleaned carpets this year but won't do it again for five years.
Reserve Replacement Fund - As a result of a reserve study you know approximately when you will have to replace a roof, repave a parking lot, and so on. This is your rainy day fund.
Both Reserve funds should start out as savings or money market accounts. You may consider moving some of the money in say $10k blocks to CDs once a quarter for better interest rates.
The only accounts we have other than reserve and operating is a laundry fund and a laundry CD. We have a coin operated laundry on each of our nine resident floors that "pays its own way" and we account for separately. After reaching about $15,000, we move about half into a CD.
Maybe this is a good time to mention that the federal government is cracking down on proper reporting of amounts over $600 paid [total in any tax year] to unincorporated individuals & small businesses. Your HOA must issue a 1099 to these people or businesses.
I agree with Ron. Our condo has a checking and savings and 4 CDs with maturities every three months. The CD's are considered reserves.
We dream of haing 10K for each CD though...
Thank you all for your advice. Our Board is debating these accounts with our PM Company. Last year accounts did get mixed up so we are having an audit done. The Board agrees that we only need two to three accounts. Here is a better explanation from our PM on the accounts they suggest. 1) insurance fund - is to hold the deductible and insurance renewal. 2)reserve study fund is to hold money for our yearly update of our reserve study. We agree that since this is a yearly expense it should be in the operating expenses. What do you think? 3) contingency fund for emergencies. The board feels that this should be in our reserves. If we had an emergency, like water damage that wasn't covered by our insurance, can't we take the money from our reserves and then to make sure that this money is put back into our reserves we could increase the dues to reflex that? 4)ongoing exterior maintenance. To rebuild our fences and other zero life projects.We agree that this should remain in the reserve account until we have to pay at which time the amount can be taken out of the reserve account to pay for it.5) 30 year component reserve. This is what they say should be our 10% required by law and any other money that we do not use for number 4).
Thank you again, for all of your help and suggestions.
We have several. One is a reserve fund account that is for capital expenses (we are slowly building this up). We have an operating account for the Treasurer to use and an account with our accountant who monitors/processes our condo fees and major utility bills. At the present time we also have a money market fund. Our total of all accounts is usually around 50,000. We are a 40 unit association, not very large and our condo fees are only $160/mo.
In the April, 2012 "Condo Lifestyles," Robert B. Levin says that condos have traditionally put reserve funds in money market funds and CDs. However, he says that with this approach, because of low interest rates, your money is losing value when inflation is taken into account. Levin advocates putting some of your reserve money into "mutual funds that include short term federal or treasury investments and short-term investment grade corporate debt. They can be bought and sold on a daily basis...." (But in his example, laddering three-year CDs gave the best result.)
Think about it!
"Alternative Investment Opportunities for Condominium Reserve Funds," Condo Lifestyles, pp. 28-30.
Having a reserve fund is what I do for my personal finances. It makes sense that you'd want that for an association as well. Carpets don't clean themselves and not having to hike up the fees all the time will be a bonus for the homeowners.
Anita Mas | http://aspotlesscarpetcleaning.com/services.html