Cash Accounts Question

I recently became treasurer of our board.

We have an operating checking account tied to a sweep account, with the checking account maintaining a set figure. I'm curious how other boards treat these accounts in the cash allocation; for example, what percentage of average monthly expenses do you keep in the sweep account.

Also, what percentage of cash do you keep in money market type accounts versus CDs?

Thanks for any insight.

The checking account is linked to the sweep account so that the checking account maintains a constant balance. When funds are disbursed from the checking account, those amounts are replenished from the sweep account, and vice versa. Our checking account does not pay interest and the sweep account pays a very small rate.

A "sweep account" is not equivalent to a reserve account. My HOA maintains one as well. It's a banking tool designed to help "maximize earning potential on sitting cash reserves". Read more about them here --> What Is a 'Sweep Account'

Hi Bill,

It looks like your HOA chases interest income by shifting excess checking account cash into that "sweep" account. Not sure it's worth the effort at today's interest rates but that's up to your board (and yourself) to decide. If Reserve Funds are smaller, then a discussion about shifting funds towards the Reserves is clearly in order.

If the Reserve Funds are smaller than the sweep account, then the HOA board is probably choosing to keep as much cash as it can in "liquid" form because a true Reserve Fund "locks" the cash into defined projects - capital expenditures and property amenity replacement. A cash-rich sweep account is a risky strategy because the board could spend its sweep account funds in any manner desired but, ethically, that cash would have a purpose - and be restricted as to its uses - if deposited in a true reserve fund. HOA shopping sprees are more difficult when Reserve Funds are defined and fed cash that isn't needed in the general checking account.

My experience has proven to me that dues payers greatly appreciate a Reserve Fund that can transparently prove that the HOA board is actively saving cash to replace property items w/ a goal of paying 100% cash for its projects, eliminating/reducing the fear and need of special assessments.

Honestly, the HOA should NOT be flush w/ liquid cash that doesn't have a purpose. With a proper budget that both covers the bills and outlines a savings strategy, a "sweep account" is really unnecessary as dues rates will be set to accomplish the spending and savings plan. Your "sweep" account would, then, only really hold leftover/rollover cash that is available because you end your fiscal year under budget.

However, don't assume anything nefarious because the board holds liquid cash and seemingly hasn't saved in Reserves. This is a not a simple topic and Reserve Funds actually intimidate some board members until they grasp the concept.

Your interest in the matter is exceptional for a new board member