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Subject: HOA savings and FDIC coverage
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Author Messages
ArtL1
(Florida)

Posts:131


12/16/2018 9:41 AM  
I'm curious what other HOAs are doing for savings accounts/CDs/etc. (i.e. for reserves) and to spread their $ out to avoid having over the FDIC insured limit in a single bank?

Most of the high interest rate accounts I find online are intended for personal use, not business use. We're currently earning a little less than 1%. I have a personal savings account that's paying 2%. When you're talking about hundreds of thousands of dollars in the bank(s), a difference of 1% can mean a couple thousand dollars per year.
CathyA3
(Ohio)

Posts:195


12/16/2018 10:52 AM  
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.

CathyA3
(Ohio)

Posts:195


12/16/2018 10:59 AM  
Oh, and don't forget about buying Treasury securities. They're not FDIC insured, but the deposits are backed by the full faith and credit of the federal government, so suitable for reserves.
NinaG
(New Jersey)

Posts:1


12/20/2018 4:25 PM  
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.
CathyA3
(Ohio)

Posts:195


12/21/2018 8:06 AM  
Posted By NinaG on 12/20/2018 4:25 PM
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.




You have to be careful with brokered CDs vs. CDs sold by banks. The brokered CDs can lose principal because you have to sell them on the open market if you need to access the money prior to maturity. If your brokered CD is paying a lower rate than would be available with new CDs, then it would have to be sold for less than the purchase price to attract buyers.

By contrast, if you need access to a bank CD prior to maturity, you would likely forfeit only some amount of interest but would receive your entire principal. (I did see some news lately of some banks imposing principal penalties, though, so you have to make sure you understand what you're buying.)
ChrisP5
(Missouri)

Posts:139


01/03/2019 6:39 PM  
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.
MarkM19
(Texas)

Posts:223


01/03/2019 8:42 PM  
Art,
If you are on the Board you need to change your mindset IMO. It is not your job to chase rates. It is your job to be a Fiduciary of the HOA assets. This means a 1/4 point or less in interest is not nearly as important as making sure the funds are both available if needed for repairs and for possible emergencies if they arise. You are not investing HOA dollars you are securing them for future needs.

Cathie gives sound advice about making sure that you ladder the CDs so that ultimately you have them renewing every 2 or 3 months. In my last HOA we had them spread out nearly every month. It is very easy to renew if the funds are not needed. If you have a good reserve study you should know when expenses are coming so you can renew or not based on needs. I personally would stay away rom none traditional banks or Credit Unions. Who know when these Internet banks come and go and I would hate to be on a board that had to explain what happened to the HOA funds if you picked a bad one. Better safe than sorry.
ChrisP5
(Missouri)

Posts:139


01/04/2019 3:24 PM  
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.
MarkM19
(Texas)

Posts:223


01/04/2019 3:46 PM  
Chris,
I respect your opinion as long as the board votes to use one bank over another than you have nothing to worry about. Regarding the FDIC protections I doubt that they instantly repay those funds the week the banks fail. I have no knowledge of how long that might take but if you have to wait for the Government and you have pending emergencies the board might have some explaining to do.

The last board I was on and was the treasurer for 4 years before becoming President for 4 years we had over 2 million dollars in reserves. We made the decision after lots of thought that our fiduciary duties was to protect the assets while making the best choices we could with several institutions.


Now that I have retired and moved to Texas I am back on another board and we will see how we handle these reserves.
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