Reserve funds

What is the best option for reserve funds? What type of savings is best? A money market, CD? Trying to find the best alternative and wanted to get some ideas. Thanks

You need to put it in something where the principal of the account won't be at risk, so you're looking as relatively conservative investments like a money market CD. You may want to talk to your HOA's banker about what your options are.

Having said that, some bankers aren't completely familiar with HOA banking issues (this isn't your garden variety small business), so I hope your bank has someone who knows what the challenges are (you may want to ask for references to see how he or she has worked with other HOAs in your area). You could also do some internet digging to find a specialist in your area.

In addition to finding the best savings account, you might also consider establishing a formal reserve policy that would cover things like reserve studies, borrowing against reserves, what components are considered reserve items, etc. This could help the current and future board manage the money in a way that it'll grow and not get misused and funding will occur regularly. Speaking of reserve studies, if you've had one done recently, the specialist may be able to give you a few tips based on the reserve study recommendations.

We have two accounts for our reserve funds; a "lite reserve" bank money market that's linked to the operating fund. That earns low interest, but provides very high liquidity--so if something comes up, we have the funds available. It's also easy for the manager to transfer in and out of if neccessary.

The bulk of our "reserve" fund is kept with Fidelity and invested in brokered, FDIC-insured CDs across a wide variety of institutions. The cash (dividends on the CDs and other uninvested funds) goes to a default Fidelity money market that invests exclusively in government and government-backed securities. We target the CDs so that they come of age a year or two before the reserve report anticipates that we'll need the cash for the replacement. Generally speaking, we fund these things from nearest to furthest; for example, if we had 2 expenditures--one in 2020 and one is 2030--we'll buy CDs maturing in 2019 until we have enough to pay anticipated expenses associated with the 2020 project. Once that's done, we move to saving for the 2030 item.

Instead of CDs, you can invest in U.S. Treasuries, which tend to be more liquid than CDs (easier to sell if you need the cash), about as risky (if you need to sell before they mature and interest rates go up, they lose value), but provide lower returns. Kind of depends on what you feel comfortable with, in all honesty.

Yes we have done a reserve study as well. We will look into this and thank you.