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HOA Banking Strategies – Choosing the right accounts

/ 7 min read

Having the right bank accounts for managing HOA financial assets is essential. In most cases, HOAs should have multiple accounts, each serving a different purpose. At a minimum, two are needed - an operating account and a separate reserve fund account.

With unique purposes and goals in mind, these HOA funds should never be comingled. Additional HOA bank accounts may also be needed for special assessments. Let’s take a look at what’s best for each purpose…

From checking accounts to manage day-to-day expenses, to investment accounts to help reserve funds grow, HOAs have to decide the right kinds of accounts they need to manage finances. We put together this article to help you decide what kinds of accounts you need for your HOA. 

Checking accounts for managing your HOAs daily operations

HOAs can use basic or interest-bearing checking accounts to manage the operating budget. When opening an account, it’s a good idea to consider a bank’s minimum balance requirements. Simple and secure online access and reporting can also be valuable for quick status checks.

With member assessments, or dues, as the primary source of operating income, HOA specialty banks offer a variety of ways to make depositing to checking accounts easy.

  • Electronic deposits, such as Automated Clearing House (ACH), or bill-pay from members’ bank accounts provide optimal cash flow.
  • Lockbox services—Is a P.O. box located anywhere in the U.S.—allowing checks to be mailed to a central location. From there, the check is imaged on the same, or next banking day, and reflected in the operating account balance as soon as it’s cleared.
  • Remote deposits via scanned check images, gives HOAs the capability to get quicker access to funds, versus a second mailing of the deposit to the bank.

HOA documents, board policies, or management contracts should establish who, when, and how many authorized signers are required on each type of account or expense. Often, authorized signers include a combination of board members and the HOA’s management company. The HOA’s fidelity bond insurance policy may also have signer conditions. Dollar limits can be established for each signer. For example, the management company may have signing authority independent of the board, up to a predetermined dollar amount. If monthly autopay is used for some routine expenses, management oversight of these vendors is important.

Also, consider a business credit card
If allowed under your HOA documents or board policy, business credit cards may work well for miscellaneous operating expenses. Individual cardholder spending limits and detailed statements reduce the HOA’s financial risk of abuse.


Get an interest-bearing account for reserve funds

Investment accounts help offset inflation as HOAs save for large, future expenses. These are known as reserve funds. When considering an investment account, it’s important to keep in mind the following:

  1. Security – HOA bank accounts shouldn’t exceed Federal Deposit Insurance Corporation (FDIC) limit of $250,000, per banking institution. 
  2. Liquidity – Funds tied up in long-term investments may make it difficult to access the money at critical times. 
  3. Investment return – While it may be tempting to have high-yield investments, a conservative approach is best.

FDIC limits make fund management more complex, but HOA specialty banks can help. Interest bearing accounts, such as Insured Cash Sweep (ICS) money market, and Certificate of Deposit Account Registry Service (CDARS), are commonly used for HOA banking.

  • ICS accounts offer liquidity for near-term expenses, often used for HOA operating accounts. Daily sweeps to another bank occur when the FDIC maximum is reached, keeping the money fully protected.
  • CDARS provide security in longer-term Certificates of Deposits, often used for large reserve funds. When the FDIC maximum amount is met, funds are transferred to other participating banks. The primary bank provides consolidated reports to the HOA for all dispersed funds.

It’s always recommended to get investment advice from a professional familiar with HOAs. Details of the financial asset investments must be disclosed to the members annually.

With HOA Specialty Banks, the community and its management company can be across town - or across the nation.

Special assessment accounts

When reserves are underfunded for a large repair or replacement project, special assessments may be preferred, versus a loan. This type of assessment is better managed in a separate ICS checking account, with income and expenses earmarked for the project.

If, however, a special assessment is needed to supplement operating expenses or underfunded reserves, a separate account is not necessary. Extra income created by the assessments can easily be accounted for in reports provided to the board and members.

Make sure the right specialty banking services are in place at your HOA to help you streamline and simplify your operations.

We would love to hear from you, especially if you have any questions.

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