At HausFS, we come across many small associations that do not keep a separate bank account for accumulating reserves funds. Sometimes this is a result of the buildings simply not having any excess funds to transfer to a savings account because they are not budgeting properly. More often the board just never got around to opening an additional bank account and segregating the reserves that they have.

There is a few good reasons why your association should have a separate bank account for reserves funds:

  1. The board can make financial decisions regarding capital expenditures more easily when it can clearly see how much money is available to spend. When operating and reserves funds are co-mingled, it is not so black and white.
  2. Some mortgage products require that the association hold reserves in a segregated account. If your association does not have a separate reserves account, owners may encounter problems when trying to sell or refinance.
  3. Associations miss out out interest income when excess reserves funds are not held in a separate, interest-bearing account.

HausFS recommends that all small associations segregate their reserves funds in a no-fee savings account that bears interest. The association should also be transferring funds to reserves each month based on its annual budget. Your budget should show a minimum of 10% allocated to reserves each year to meet lender requirements.

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