Reserve funds take years to build. In a growing number of Chicago and North Shore buildings they now run well into seven figures, which is good planning and a new kind of exposure. Boards spend months on the reserve study that sets the contribution and very little time on where the money actually sits. This guide covers the deposit insurance facts every board should know and the decisions an investment policy should settle.
How much of an association's money is FDIC insured?
Up to $250,000 per insured bank, in total. The FDIC insures deposits up to $250,000 per depositor, per insured bank, for each ownership category. An association's deposits fall in the corporation, partnership and unincorporated association category, and the FDIC states that a homeowners' association's deposits at one bank are insured up to $250,000 in total, not $250,000 for each member.
The number of owners, directors or authorised signers does not change this. FDIC guidance says the number of members or account signatories does not affect coverage. A 200-unit association with $1.2 million in one bank has the same $250,000 of coverage at that bank as a 6-unit building.
Does opening more accounts at the same bank add coverage?
No. The FDIC combines all deposits owned by a corporation, partnership or unincorporated association at the same bank. Separate operating, reserve and special assessment accounts at one bank, or a checking account plus certificates of deposit there, are added together against a single $250,000 limit.
Two practical traps follow. First, an operating account that swells during a special assessment collection can push the combined total over the limit even if the reserve account is under it. Second, a bank that operates under several brand names may still be one insured bank; the FDIC's BankFind tool shows whether names belong to the same institution.
What products are and are not FDIC insured?
Deposits are; investments are not. The FDIC insures checking, savings and money market deposit accounts, certificates of deposit and official bank items at insured banks. It does not insure stocks, bonds, mutual funds, annuities, municipal securities or crypto assets, even when bought through an insured bank. U.S. Treasury bills, notes and bonds are not FDIC insured but are backed by the full faith and credit of the U.S. government.
Watch the vocabulary. A money market deposit account at a bank is a deposit. A money market mutual fund is a mutual fund. They sound alike, and some sweep arrangements move cash from a bank account into a fund overnight. The board should know which one it has.
How do deposit placement and sweep programs work?
They spread one deposit across many banks so each piece stays under the limit. The association deals with one bank, which places portions with other insured banks in a network. Coverage at the receiving banks depends on pass-through rules: the bank's records must show the agency nature of the account, and records must identify the association as the owner and its interest.
If those requirements are not met, the FDIC says the deposits are insured to the named account holder, typically the intermediary, and combined with other funds it holds at that bank, which can leave money uninsured. Before joining a program, the board should get written confirmation of how the association is identified, a list of receiving banks, and a monthly report showing balances at each one. If the association already has deposits directly at a receiving bank, those count toward the same $250,000 there, so ask the program to exclude that bank.
Does Illinois law tell boards how to invest reserves?
Not in detail. The Condominium Property Act requires budgets to provide reasonable reserves (Section 9(c)(2)) and requires directors to exercise the care required of a fiduciary of the unit owners (Section 18.4), but it does not set an investment standard for reserves. Your declaration may. Read it, and have counsel confirm any restrictions before adopting a policy.
The Act does address management companies that hold reserves: they must keep a separate account for each association, although the board may authorise a pooled interest-bearing investment account with records identifying each association's money (Section 18(g)). The manager licensing law separately requires licensed firms to keep each association's funds segregated. Our guide to segregated accounts and commingling explains why boards should insist on accounts in the association's own name.
What should a reserve investment policy include?
Safety first, then liquidity, then yield, in writing. A short board-adopted policy prevents improvised decisions when a bank offers a promotional rate or a director suggests a fund. It should tie maturities to the reserve study's projected spending and state who may move money and how the board will monitor it.
- Objectives in order: preserve principal, keep money available when the reserve study says it is needed, then earn a reasonable return.
- Permitted holdings, for example insured deposits, certificates of deposit within the insurance limit, and any other instruments counsel and the CPA confirm are appropriate under the declaration.
- Prohibited holdings, such as stocks and other investments that can lose principal.
- A per-bank cap keeping the association's combined deposits at each insured bank within the FDIC limit, or inside a verified placement program.
- Maturity ladder matched to the reserve study's component replacement schedule.
- Authority and approvals: who may open, move or close accounts, and the board vote required.
- Reporting: a monthly schedule of every holding, bank, rate and maturity.
- Annual review alongside the budget and after each reserve study update.
Boards that want specific product recommendations should get them from the association's CPA or a qualified financial professional engaged by the board; a management company report is not a substitute for that advice.
Board checklist: reserve safety review
- List every account and holding with its bank, balance, ownership title and maturity.
- Total by bank and compare each bank's combined total with the $250,000 limit.
- Check each bank in FDIC BankFind, including brand names that may share a charter.
- Identify any non-deposit product, including sweep vehicles that may be money market mutual funds.
- For any placement program, obtain the program agreement, receiving-bank list and monthly balance report.
- Read the declaration for investment restrictions and have counsel confirm them.
- Adopt or update a written investment policy in an open meeting.
- Match maturities to the reserve study; see how to read a reserve study.
How Stellar helps protect reserves
We report every reserve holding by bank and maturity each month, flag balances approaching the insurance limit, and prepare investment policy drafts for the board, its counsel and CPA to review. Explore our financial management services, or contact us for a reserve safety review. This article is general information, not investment, legal or tax advice.