Investing Reserve Funds

If you have $500K and depending on the needs of the community, laddering certain amounts of money in CDs would be a wise move, as it is free money, outside of the tax you would have to pay. But, not all people are willing to do that, most HOA boards I have dealt with over 10 years are LAZY.

Have the discussion and offer to do the work yourself.

These days there are banks and credit unions that offer savings and/or money market accounts that pay 1.0 to 1.5%. The funds are available for withdrawal at all times if needed. This is easy and much better than the .1% rate you are getting.

I use this site to find the best rates:

https://www.depositaccounts.com/blog/

There are short term CD's ( 1 year of less) paying 2% APY.

Do the research and earn some interest for your HOA.

Divvy up the Reserve Fund into:
Cash (money market account)
1 year CD
2 year CD

Apportion according to expected needs, erring on the side of cash.

Perhaps consider a CD ladder of about 2 years. E.g.
put one-third into cash
put one-third into a 1-year CD
put one-third into a 2-year CD

When the 1-year CD matures, put it into a 2-year CD. Subsequently every time a CD matures, put it into a 2-year CD.

Adjust according to the end-of-life needs of major capital assets.

I appreciate all the responses. We're in the midst of reviewing our reserve analysis. Hurricanes and tornados are always a concern around here. So is flooding even though we're not in a flood zone per se. The actual amount spread out in several bank accounts is closer to $750,000. Our next scheduled big-ticket reserve expenditure is expected to be in 3 years with an estimated cost of $320,000. After that there's another 4 years before we get to our biggest-ticket item: roof replacement.

Last year's reserve analysis was significant in that it called for a $50 increase in assessments for reserves contributions spread out over 4 years. The plan was monthly increases of 10, 15, 10 and another 15 each year. The board approved the $10 for this year but there's a good chance that the new board won't approve the $15 monthly scheduled for next year. If they don't approve it we're in for a world of hurt. An additional $5,000 to $10,000 a year influx of interest into the reserves would go a long way toward defraying the shortfall in reserve contributions.

Thanks again. Many of the responses raise issues that sound very familiar, from 80-year olds running the finance committee (and board) to how much should we keep in cash for emergencies. I'd never advocate putting all of the funds in CDs. Maybe half since that would cover our insurance deductible in the event of major storm damage before 2021 when the $320,000 expenditure is planned.

No professionals here since our retired CPA moved out of the community. We're also (badly IMO) self-managed. It may be best to do nothing and avoid any risk. Lots to think about.

I have banked for some 30 years now with a bank lacking a brick-and-mortar presence. I also have a checking account with my brokerage. Currently my brokerage has no presence where I live. For over a decade, and usually several times a year, I have transferred money between the bank account and the brokerage account with a few clicks of the mouse. I have bought CDs through the brokerage account and been happy. For safety, I check my two accounts daily. The one drawback for me is when I want to make a sizable craigslist purchase and need a few thousand dollars of cash. My out-of-town bank limits how much I can withdraw from an ATM each day. My brokerage cannot cash checks, but it will accept checks for deposit, and it will mail me a check for the amount I specify when I want to, say, buy a home.

I expect a corporate bank account will have more checks and balances for transfers.

I think for my HOA I would want a brick-and-mortar presence. I see too many cases of HOA embezzlement. I think a local bank would be better for preventing any kind of theft. I feel like crooks know the latter.

I have to agree about having a local presence. There are too many cases of non-cooperative board turnovers, what happens when somebody voted out doesn't turn over the password for an account with an on-line bank and disappears?