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Safeguarding Association Reserve Funds over $250,000.00 By Julie A. Perkins, Esq.

Since the passage of the Ohio Condominium Act in 2004 and the Ohio Planned Community Act in 2010, Ohio’s community associations have been building reserve funds to repair and replace major capital items without the need for special assessments.  Fortunately, many associations have built substantial reserve funds and are now more financially sound than ever.  Unfortunately, board members are faced with the unexpected headache of managing multiple accounts at different banks to keep all of the association’s funds protected by the Federal Deposit Insurance Corporation (“FDIC insurance”).

FDIC insurance protects association funds at a single bank up to $250,000.00.  When an association has more than $250,000.00 in reserve funds, boards typically open accounts at different banks, each with no more than $250,000.00.  This leads to extra administrative work for board members to manage numerous monthly bank statements including multiple 1099 statements at year end. 

The good news is there are other options available to avoid these hassles and properly safeguard the association’s funds at the same time.  The Insured Cash Sweep Service (“ICS”) and the Certificate of Deposit Account Registry Service (“CDARS”) allow associations to benefit from multi-million dollar FDIC coverage protecting the association’s reserve funds while working with just one bank that offers ICS and/or CDARS.

When an association deposits more than $250,000.00 with a financial institution using ICS or CDARS, the funds are divided into amounts under $250,000.00 and placed into deposit accounts at other ICS or CDARS network banks.  ICS allows the association to open multiple money market deposit accounts using the ISC savings option, while CDARS allows the association to hold multiple certificates of deposits (“CDs”) at the same bank.  Each money market account or CD is under the $250,000.00 FDIC insurance limit.  Although the association deals only with one bank, the principal and interest of all the accounts are protected by FDIC insurance.

Board members can have the peace of mind by properly safeguarding all of the association’s funds, including reserve funds over $250,000.00, with the full benefit of FDIC insurance while banking at one financial institution and avoiding the inconvenience of opening and maintaining accounts at different banks all of over town.