Reserve Fund Interest Rate

Well, I've been the HOA President for 3 weeks. Yippee! Many questions and issues are facing us but one issue is the lackluster interest rate our Management Company has our Reserve Account stashed in. We are earning about .4% interest. We'd like to stash this money some place else earning more. Any suggestions? A different bank? A CD? any other ideas?
Appreciate any thoughts or suggestions.
Dennis G7

Personal opinion, your MC shouldn't have your account. This should be in the sole custody of the Association.
The MC can make deposits but should not be able to withdraw from the Reserves.

Depending on how your reserves are structured, you might want to consider a money market account and/or purchase some certificates of deposit.

Sound advice. Get that Reserve Fund money out of your MC's hands post haste. Our Reserve Funds are in the name of our President and Treasurer as co-signers.

Adding on to what Sheila said, some boards look into opening accounts at brokerage houses because of the access to a wider range of products. However, brokered CDs trade on the open market, and it is possible to lose principal. Ditto bonds. You should always buy new-issue CDs or bonds and hold them to maturity. So if you go the brokerage route, be sure you understand what you're buying.

You also need to read the fine print if you buy CDs from banks. Typically you never lose principal - any early redemption penalty reduces the interest you'll be paid. However, I have heard of some banks that actually reduce your principal as well. You'll want to avoid these unless you are very sure that you will not need to money prior to maturity *and* the bank is compensating you in some way for taking the additional risk (ie. paying a higher interest rate).

We looked into that last year. It seems most people prefer it when there's a local warm body you can go and throttle (figuratively) if anything untoward happens to your funds. While internet bank funds are probably safe, you have the added concern of establishing the online password and ensuring its safety and confidentiality. Not a huge task but if the password goes missing or is otherwise compromised, who do you "complain to"? It's not an unsolveable issue but it's something that must be addressed.

We have several hundred thousand dollars in our reserves. We have to split it up so that no one account exceeds the FDIC protection limit. Our bookkeper a few years ago and our short-time management company earlier this year alluded to some kind of account arrangement they called a "sweep account". I haven't seen a lot of references online to that type of thing but when they promise something that seems too good to be true, I tend to discount it. The claim is we can have all of our reserves money, far in excess of the FDIC limit, earning interest as part of one "account" without any of it being in jeopardy due to exceeding that FDIC limit. I've never heard it adequately explained with a discussion of the risks and/or drawbacks, but it may be something worth looking into.

For years our reserves were earning 0.1% interest in money market accounts. Thanks to a lot of legwork on the part of a couple of new directors in 2019, we were able to earn closer to 2% last year. There were a lot of phone calls shopping around for the best rates with local financial institutions (all banks, no brokerage accounts), some moving money around between accounts, closing a couple of accounts and setting up new ones, but 2% vs 0.1% has been very beneficial for us. With the economy and interest rates the way they are we THINK we'll get closer to 1% this year. Still, 5 figures is better than 4 figures. In our case, it took a LOT of work to find 2%. The powers that be would like to drive interest rates to zero. A discussion for another forum.