Reserve investment
Where reserve dollars should sit while they wait to be spent.
Reserve funds should prioritize safety and liquidity over return, since the money must be there when a roof, elevator, or paving project comes due. Most boards keep reserves in insured bank deposits, spreading balances across institutions to stay under the $250,000 FDIC limit per depositor, per bank. Some states restrict reserve investments further by statute.
Safety first, growth second
A reserve fund exists to cover major repairs the association can already see coming, not to generate investment income. That changes how a board should think about where the money sits. The prudent approach for association funds puts protecting the principal ahead of chasing a better rate.
"Preserving principal, avoiding unnecessary or speculative risk."
Source: Association Investing and FDIC Limits, CH&P Management
In practice, that principle rules out anything where the balance could be worth less than the association put in on the day a roof needs replacing.
Spreading deposits under the FDIC limit
FDIC insurance covers $250,000 per depositor, per bank. An association with a single reserve account holding more than that has an uninsured balance sitting above the line the moment that bank has trouble. Boards commonly split reserve money across several FDIC-insured banks so each account stays under the ceiling.
Stocks, corporate bonds, and mutual funds fall outside FDIC coverage entirely, no matter how the account is titled. That is a separate risk from market risk: it means there is no federal backstop if the value drops or the issuer fails.
What your state and your documents allow
Some states restrict which investments a reserve fund may hold beyond the general safety principle, and an association's own governing documents or investment policy can add further limits on top of that. Before moving reserve money into anything other than insured bank deposits, check your state's statute and your own investment policy, not just what another association down the road, or in another state, happens to do.
Check yourself
Answer before you read the explanation, recalling it is what makes it stick.
Your association's reserve account holds $600,000 in a single bank, all under the association's tax ID. What is the main risk?
The treasurer wants to move reserve funds into a mix of stocks and corporate bonds to chase a higher return. What is the concern?
A new board member mentions that their previous association's state restricted reserve investments to government-backed instruments only. What should this board do before investing reserve funds beyond insured bank deposits?
Sources
- Association Investing and FDIC Limits, CH&P Management
Reserves
Next, see how the interest rate a study assumes on these reserve dollars shapes the funding plan: Interest assumptions.
Which reserve investments are permitted, and whether a state restricts associations to government-backed instruments, varies by state and by the association's own investment policy.