HOA savings and FDIC coverage

We just went through this, and yes, it was frustrating that the advertised CD rates are not available to business customers. I guess it makes sense: if you're a for profit business, you're supposed to earn your money through business activities, not investments. But associations aren't businesses in that sense. Anyway...

You might look at area credit unions, which typically will give you the higher rates. There will be trade offs, though. Credit unions generally don't compete for customers the way banks do, so I found them to be a bit less responsive. This can be an issue if you need information and the credit union doesn't feel the same sense of urgency that you do. Banks, particularly large ones, often have top notch web sites, and you can get access to information more easily. You may also find that it's easier to get information about the financial stability of larger institutions - this can also come into play when making a decision. And banks often have more branches that are more conveniently located.

Re: FDIC insurance in general (and the credit union equivalent NCUA), some banks and credit unions carry additional insurance over and above the $250,000 limit, and they actually insure deposits up to $500,000. Worth checking into. In addition, our bank offers a structured CD product that actually holds portions of the funds in other institutions, thus bypassing the FDIC limit - perfectly legal, perfectly confusing, and I didn't find this in any credit unions I checked out.

I also found that if you're flexible, you can get higher than advertised rates from banks. We wanted to do a CD ladder with maturities of 6 mos, 12 mos, 18 mos, and 24 mos. However, given the amount of money we were investing, our bank offered higher rates for CDs with maturities of 9-11 months and 21-23 months; and the rate for our plain savings account was higher than the rate for a 6-mos CD. We ended up with a kind-of sort-of ladder that gave us 1-2% more than if we'd stuck with the original plan. However, it takes more hands on managing, so that may be an issue.

Good luck with your search. I found the whole process to be like pulling teeth - and I spent part of my career working for a major brokerage house, so I'm comfortable dealing with this stuff. Board members without a financial background may be pretty intimidated. In general, I found dealing with credit unions to be less confusing and more like personal banking, but I did have some reservations about them.

Internet banks seem to have some of the best rates. Try business rates at EverBank (now TIAA) in your home state, First Internet Bank of Indiana, Synchrony Bank etc. All of these have web sites where you can get rates, contact info etc. These internet banks have FDIC insured CD's with good rates for business use. The other option is to open a brokerage account where they have an inventory of CD's from various institutions all FDIC insured. You should be able to find a brokerage with no fees for an account that buys only CD's. Wherever you go make sure that they can handle the periodic change of authorized signers (due to elections etc.) in a manner that suits your needs.
Hope this helps.

We have run into this issue, we shop around to multiple banks that are willing to take non profit deposits and place funds with them. We are currently with three banks and staring to look around for our 4th for CD deposits.

Online banks pay better but we ran into a paperwork problem with one and the rest of our board is no longer comfortable going that route.

If you are willing to sacrifice a bit of interest for convenience look for a bank that offers a product called CDARS (cedars). It’s a program that sturctures your deposits across CDs at multiple banks pushing FDIC coverage into the 10 million plus range which most associations wouldn’t get close to.

Mark I disagree somewhat with your advice, while the board should be looking at “safe” investments they should also be looking to somewhat maximize their returns otherwise we would all just have our funds sitting in checking accounts.

Most internet banks are FDIC insured, you can also verify the coverage on the FDIC website and not just take the banks word for it. The bank may fail but the association won’t lose funds as losses will be insured to the FDIC limit of 250,000.