How are your Reserve Funds invested?

Integrated single family HOA community of 314 residential lots (almost all built out), couple of dozen assessment paying (roads, mainly) commercial lots - budget of about $220K a year. Our total reserves are in the range of $500K, with the current year’s assessments and some retained earnings from last year of another $250K.

Our property manager of six years has great web based tools, online access for Board to almost every piece of data, and uses Mutual of Omaha’s Community Association Banc (CAB - https://www.mutualofomahabank.com/community-association/financial-solutions-community-associations) for banking. The PM’s accountant has the ability to monitor, track and act via the CAB tools. This has all worked effectively as far as I have been able to tell. There is an additional charge of $50 a month for managing non-CAB accounts - the HOA has never gone this route. The PM is obviously trying to shoehorn us into their model.

MoO’s CAB has three types of accounts: (1) checking, (2) money market and (3) CDs.

About half of our Reserves are in CAB CDs (24 month and opened about 18-22 months ago at 0.60%), and about half are in the Checking (0.05%) … none is currently in the money market area at CAB.

Current 24 -12 month CDs are about 1.4-1.75 % (https://www.mutualofomahabank.com/community-associations/banking-solutions/deposits)

Money Market rates are 0.45-0.5% (https://www.mutualofomahabank.com/community-associations/banking-solutions/deposits)

So, given the above, in my mind, we are not optimized. I think we should:
1. Look for higher CD rates and pay the upcharge to the PM if the rate difference warrants.
2. Move a portion of the current Reserves that are in checking status into best rate CD - if the 12 month is 1.75%, do that vs the 24 month at 1.4%.
3. Move a portion of the current Reserves that are in checking status in the Money Market Fund.

Thoughts?

I wouldn't be happy paying $50 a month for each non-CAB account. What about the FDIC limits? Are you expected to leave amounts in excess of that in MoO accounts to avoid a $50 per month charge for each account outside of CAB?

Every situation is unique and shopping for rates is something everyone should do. We have an operating account at the bank preferred by our bookkeeper. We also have 5 accounts for reserves each subject to the $250,000 FDIC limit. We shopped around for rates last year and they earn about 2% annually on average. That took some time and effort but 2% handily beats the 0.1% we had been earning previously for a number of years with different accounts at different banks. We don't have any CDs right now but our strategy might change if rates at the other banks go down.

Save your homeowners $10,000 a year by getting a 2% rate as opposed to doing nothing can be a powerful election campaign issue. Especially in an association where leaving money on the table will cost the owners an extra $100 a year each.

Ally on-line bank is paying 1.6% on a savings account with no time limits. Discover has an online bank that pays higher interest and so do others. You could use one of those.

What may be appropriate or not with your community might not be the same for mine or someone else’s. You should be looking at your reserve study and its recommendations and talking with your bank about investing the money in a way where you can meet those goals while not risking the principal (so there shouldn’t be any investment in the stock market – our documents specifically prohibit this.) That’s a challenge these days because it doesn’t seem like anyone has decent interest rates.

PS: be careful with using actual business names on this website – it’s against posting rules

Again, the most part of the equation is properly using the information provided in the reserve study when making financial decisions.

Because the cost of borrowing money is SO low, interest paid will also be low.

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