Operating Account FDIC Insurance Issues

We are a fairly large HOA of 800 homes with extensive common elements. In the past we experienced a number of occasions when the balance in our operating account exceeded the $250,000 FDIC insurance limit. We opened a money market account at another bank so we could move excess funds out of the operating checking account. Still, this did not completely solve the problem. At the beginning of the month when the monthly dues flowed into the operating account (approx. $180,000) and there were a substantial number of large checks still outstanding the balance was over the $250,000 limit. Since we didn't know when the checks would clear we could not move funds out of the account.

Last year I became aware of the provisions of the Dodd-Frank legislation that was passed as a result of the banking crisis. It provides that non-interest bearing accounts receive unlimited FDIC insurance. So we directed the bank to convert our operating account to a non-interest bearing account. It still occasionally exceeded $250,000 and we lost out on a nominal amount of interest but we did gain full insurance coverage.

I recently learned that, unlike the increase of the FDIC insurance limit from $100,000 to $250,000 which was made permanent, the unlimited insurance provision will expire at the end of this year (12/31/2012).

Does anyone else on the forum face this issue? If so, what will you do if the unlimited insurance provision is not extended?

Yep ... LOL wish we had that problem.

We maintain a relationship with 2 banks although we don't have anywhere close to the monthly income that you do. There are a few programs that will spread your deposits among multiple banks to keep your balance under the FDIC insured limit automatically. See this article for more information.

http://www.bankrate.com/finance/savings/6-ways-to-insure-excess-deposits.aspx

That is kind of what I figured out after you posted that is a regular type cash flow issue. Many of us don't have that amount flowing in and out of our HOA's. We are used to having maybe that amount in a reserve account. The amount that you keep up with is rather large and I would consult the bank or a financial planning company for advice. They may have some options available to diversify with keeping the funds available.

The FDIC insurance isn't a guarantee. There are factors involved there before it qualifies to collect. It's not like it's paid off if someone comes in and robs the place. There has to be some more involved such as the fundamentals of how the bank uses the money. Many banks can collapse upon itself since they usually invest their clients money. Your money in a bank can be used by the bank to make a profit for them. So be careful and do your research on the bank you use on how they base their loan policies and such.

Have you checked into Credit Unions? That may be another option as they can offer a different way to manage your money. It's more based on the number of members as a guarantee of the money. I am not sure what kind of Credit unions are offered in your area but they may be worth checking out. Their services may be a better option.

I may not have a million dollars to my name but I have fantasized enough of what I would do if I did...LOL. So I've done some research into what would be the reality of that problem...Now going to go find a place to buy a lottery ticket...

I would suggest the HOA set up three accounts to handle the situation (I only wish our HOA had this problem!):
A. A receiver account into which all dues are deposited.
B. A 30 day account into which the dues can be transferred electronically from fund A to
meet the recurring utility and property maintenance bills.
C. An overflow account to which excess funds can be transferred electronically from Fund A or B,
to be used to fund non-recurring operating expenses such a common element repairs or scheduled
preventative maintenance.

Of course, the three funds would have to have an initial deposit and should not be allowed to drop below an established minimum. Should fund C start to accumulate excess funds, then a decision to move some fund C to Reserve accounts and/or CD may be in order.

The model for this strategy comes from a retirement planning technique in which there are three “buckets”; one for the current year, second for near-term expenses (5 years) and the third for 5 years and beyond.