Community Associations, at various times, collect money to fund reserves and/or for working capital. Is it wise for Associations to invest these dollars while they are accumulating for future repairs and replacement of the Communities’ assets?
The answer is yes – but through well-informed decision making.
The first important thing to remember is that Reserve Studies assume some level of interest is being earned on reserve account balances.
However, these assumptions are relatively conservative with respect to the interest earned. Typically it will range from one to three percent.
But it’s important to note – the interest-earned component is an integral part of the funding plans for reserves. Therefore the Association should always have in place a policy or strategy for keeping the reserve balance in some low-risk, interest bearing account.
Put simply – Your HOA should seriously consider developing and approving an investment policy to help maximize the interest income while minimizing risk. For example, your policy should list types of acceptable investments as approved by the HOA Board of Directors. They might include Certificates of Deposit (CDs), Money Market Accounts, FDIC insured banks or other investment companies that are pre-approved by the Board.
The idea here is to make sure your money is always working for you but don’t lose sight of the inherent risk involved with investments. Always consult the appropriate professionals when setting up your policy.
Read More: The role of an HOA board
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