Reserve Funds

Started by TonyT • 6 replies • 2470 views

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TonyT (Massachusetts)
Posts: 8

Posted:

What direction do you give your management company for investment of your reserve fund. Right now we have half our reserves in a CD, and half sitting in a savings account returning 1.5% interest. The last board set up this system, does this sound like a good plan

Tony
North Andover, MA.

LisaS (Illinois)
Posts: 341

Posted:

We do not have a management company, so we handle our financials ourselves.

Last year was our first year as an owner run association. We created a budget, collected dues, and left the $30,000 reserve we were given in the bank in case our budget was not accurate.

As it turns out, our budget was very close to projections and we decided to place a large portion of the reserves in CD's as well. We divided the money, and invested some in an 18 month CD, some in a 12 months, and some in a 6 month (referred to as laddering). None have a penalty attached if we need to withdraw the money. Also-risk free

The interest is better than savings, less apt to be spent than if it was in checking. And it shows your members you are doing something to help the funds grow.

Good luck,
Lisa

DaroldF (Colorado)
Posts: 6

Posted:

Our Association has been in place for about 20 years so we have substantial reserves. We keep our operating budget and funds separate from our reserves long term (20 year) replacement and major repair plan and reserve funds. We have a management company, but we also have a professional financial firm investing our reserve funds as we direct. All of the reserve funds are invested in CD's backed by FDIC or fully insurred money market funds. The CD's have maturity dates that are "laddered" to get the greatest return yet have funds available when needed according to the plan. Some of the CD's are also "step-up" CD's that the interest rate steps up on a predetermined schedule to protect us for future rising interest rates. Security has to be the Board's biggest concern and criteria.

JackJ (Florida)
Posts: 40

Posted:

I'd be interested in knowing where you can get cd's that have no penalty for early withdrawal. Interesting.

JackJ (Florida)
Posts: 40

Posted:

Darold: What is a "step-up" cd? I have never heard of them as I have never heard of no penalty for early withdrawal CD's.
Where do you get "step-up" and no penalty cd's?
We are getting out of the market and have already decided to go with cd's so I'm very interested in those two cd "pluses".
Thanks

LizJ (Florida)
Posts: 34

Posted:

How many units? And how much money constitutes "substantial" reserves?

RogerB (Colorado)
Posts: 5,067

Posted:

Lisa, the purpose of reserve funds is not as a backup in case your budget is not accurate. We recommend two budgets each year - an operating budget and a reserve budget.

Liz, for me substantial (adequate) reserve funds means a special assessment will never be needed.

We recommend keeping minimum operating funds in a checking account with adequate backup funds in a money market account which can be transferred to checking by a phone call. Reserve funds are placed in laddered (mature at differing times) long term CDs.

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