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Subject: Investing Cash in Capital Reserve Account
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(New Jersey)


05/03/2021 5:34 AM  
Looking for a way to put our capital reserve to work earning interest safely. Currently it's earning pennies monthly. What are your experiences?

Thank you in advance.


05/03/2021 5:35 AM  
It's not my money.
We use certificates of deposit.


05/03/2021 6:04 AM  
CD's or Certificate of Deposits. You can get from 6 month to 5 year terms . Tim, I wonder if Savings Bonds are a wise investment vehicle, they take a little longer to mature, and i don't remember having to file any tax forms when I surrendered my bonds.


05/03/2021 7:53 AM  
Because your goal is to preserve capital, you are limited in what you can invest in: CDs, Treasuries, money market accounts (NOT money market funds, which can lose principal).

* Yes, fixed income yields are very low right now (known in industry parlance as "squat"). There is always a trade off between risk and reward, and you can't have safety of principal without sacrificing yields. In addition, those rates that banks advertise are targeted toward their retail customers, not the business accounts - business customers get even lower rates ("less than squat"). It's annoying.

* You increase yields in fixed income securities by tying up your money for longer period. Longer-term CDs nearly always pay more than short-term CDs, for example. CDs ladders are a common method of safely increasing yield.

* If your reserve studies are up to date, you should have a pretty good idea of when you'll need to spend money. Put this info into a spreadsheet, along with your projected reserve amounts for each year. It will give you an idea of how much money you can tie up with longer-term CDs or bonds.

* Pay attention to FDIC insurance. A number of banks offer a program called CDARS, which allows a customer to have FDIC insurance on amounts over $250,000.

* Shop around! Credit unions often offer higher yields than banks do, and many insure their deposits by the equivalent of FDIC insurance. You may need to do a little more work checking out the financial strength of these institutions. Banks are always in the market for new customers, and they may offer higher teaser rates to get you to open an account. Also don't hesitate to change banks if you can get a better deal elsewhere - it's a business relationship, not a marriage.
(New Jersey)


05/03/2021 9:57 AM  
Thank you all for the responses. Very helpful.


05/03/2021 2:59 PM  
Don't forget the tax issues that can be involved here. Your HOA is most likely a not for profit corporation. So certain investments or sales are subject to taxations. Be aware of this before deciding what you call "making the money work for you". It may not but Uncle Sam. Plus you have to have access to Capital sometimes on short term notice. Having it tied up in anything long term can hurt. Especially if your HOA is going to need "new roofs" in 2 years and it's invested in a 3 year CD etc...

Former HOA President
(New Jersey)


05/03/2021 3:53 PM  
Yes, we're non-profit. I have considered the very helpful comments provided in this thread and have spoken to our bank today (Wells Fargo) and conclude that no action is appropriate at this time. I'm very grateful for the helpful advice from this group. Thanks very much.
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Forums > Homeowner Association > HOA Discussions > Investing Cash in Capital Reserve Account

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