Question:
HOA Reserves and important part of a Board's responsibilities to the association. There are four important factors to consider when placing HOA reserves:
1) Security: HOA reserves must be 100% safe-- in almost every case, this means that HOA reserves need to be deposited with full FDIC coverage. In limited cases, HOA reserves may be invested in U.S. Treasury Securities-- though very low interest rates make Treasuries a non-factor for today's HOA reserve deposits.
2) Yield: A board has the responsibility to earn competitive rates for HOA reserves. Generally, deposit yields increase with the term of a given deposit (e.g., a 1 year CD usually has a higher rate than a 1 month CD). Additionally, some banks offer more competitve HOA reserve rates than others.
3) Access: The ability to immediately access HOA reserve funds or to synchronize HOA reserve investments with anticipated cash flow needs is also an important consideration. Note that there is generally a trade-off between Yield and Access. In other words, the highest yielding HOA reserve accounts generally have limited access (a CD) and the most accessible HOA reserve accounts (Money Markets) generally have a lower rate.
4) Efficiency: HOA reserve accounts have some unique requirements. HOA specific signature cards and a bank that frequently handles HOA reserve accounts will make for a more efficient process for your association board.
To learn more about HOA reserve accounts, click on the icon below to request our HOA Reserve Account Whitepaper.
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