Investing Reserve Funds: A Guide for HOAs and Condo Associations

Managing reserve funds is a critical responsibility for HOA and condo association board of directors. These funds ensure that your community can handle major repairs and replacements without imposing unexpected costs on residents. Let's explore how to invest these funds wisely, balancing safety, liquidity, and returns. 

Prioritizing Safety: Risk vs. Reward

The primary goal when investing reserve funds is to keep the association's money safe. While higher-risk investments might offer the allure of greater returns, they can jeopardize the financial stability of your community. It's essential to assess the risk versus reward carefully and opt for investments that protect the principal, even if they yield lower returns. 

Understanding FDIC Insurance and Investment Options

The Federal Deposit Insurance Corporation (FDIC) insures deposits up to $250,000 per depositor, per insured bank. For associations with reserves exceeding this amount, it's crucial to ensure all funds remain protected. One effective solution is the Certificate of Deposit Account Registry Service (CDARS). CDARS allows your association to invest in certificates of deposit (CDs) across multiple banks while managing everything through a single financial institution. This approach ensures that all your funds are FDIC-insured, even when they exceed the standard limit.

Seeking Specialized Financial Advice

Navigating the complexities of investing reserve funds requires expertise. It is advisable to consult with financial professionals who specialize in working with HOAs and condo associations. These experts understand the unique needs and legal requirements of community associations and can guide you toward the best investment strategies. Partnering with banks experienced in association banking can also provide tailored solutions that align with your community's goals. 

Maintaining Liquidity: Planning for Future Projects

While investing is important, maintaining sufficient liquidity is equally crucial. Your association should have readily accessible funds to cover upcoming projects and unforeseen expenses. It is essential not to tie up all your reserves in long-term investments, which could leave your community in a compromised position. Regularly reviewing your reserve study and aligning your investments with anticipated expenses will help ensure you leave a comfortable financial cushion.

Exploring Investment Options Beyond CDs

While certificates of deposit are a popular choice due to their safety and predictability, other low-risk investment options can be considered. For instance, U.S. Treasury securities are backed by the full faith and credit of the U.S. government, making them a secure investment. However, it's imperative to remember the risk versus reward balance. For HOAs and condo associations, best practices favor lower-risk investments to safeguard the community's financial health, even if that means accepting lower returns. 

By prioritizing safety, seeking specialized financial advice, maintaining liquidity, and carefully selecting investment options, your association can effectively manage reserve funds to ensure the long-term prosperity of your community.

Additional Resources

Association Reserves outlines 3 pillars of HOA reserve fund investments in an easy-to-read article Navigating Inflation and Investments: Strategy Guide for HOA Reserve Funds

First Citizen Bank cares about the safety of HOA funds. They wrote an article all about FDIC coverage Ways to Keep HOA Reserve Funds Safe Above FDIC Limits