Is it Wise to Invest Reserve Accounts?

  Yes, it does.                                                       

One of the important things to remember in this regard is that Reserve Studies assume some level of interest is being earned on reserve account balances.  The assumptions in Reserve Studies are typically very conservative with interest earned (or investment yield – net of taxes) ranging from 1 percent to 3 percent.   But, note that the interest-earned component is an integral part of the funding plans for reserves. So, there should always be a strategy or policy for keeping the reserve balance in, at a minimum, some form of low-risk, interest-bearing account or certificate of deposit (CD) program.

All Community Associations, particularly those with the potential for significant reserve and/or savings account balances, should consider developing and approving an investment policy.  Investment policies help to maximize (conservatively) interest income and to provide good cash management procedures.  A good investment policy will list types of permitted investments as approved by the Board, such as money market accounts, certificates of deposit, U.S. Government obligations and U.S. Government agencies obligations. The policy may also list approved FDIC-insured banks and/or investment companies which the Board has agreed to use. The Board of Directors may want to go one step farther and appoint a Finance Committee to help oversee investments and to give guidance to the applicable AAM Accounting staff member to facilitate transfers to various accounts to ensure that funds remain fully insured.


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