How to Maximize FDIC Insurance for HOA Funds

One of the most important functions of a community association management company is to help build the financial resilience of homeowner associations, or HOAs. While liquidity and return are essential pieces of that puzzle, the security of HOA funds must also be a top priority.

In part, that means ensuring HOA reserves and operating funds have as much Federal Deposit Insurance Corporation, or FDIC, protection as possible. Here's how to gain coverage beyond the FDIC limit while still preserving the liquidity many HOAs require.

The importance of FDIC coverage

As you research HOA bank accounts, FDIC coverage should be a key priority.

"FDIC insurance is the gold standard when it comes to protecting homeowner association funds," says Steve Esposito, Director of Community Association Banking Client Support at First Citizens.

There are several types of FDIC-insured bank accounts for HOAs—including checking and savings accounts, money market accounts, and certificates of deposit, or CDs. When you open one of these accounts at an FDIC-member bank, it will be automatically insured up to the FDIC limit of $250,000 per account holder at a single member bank.

However, it's important to remember that not all banks are FDIC-insured. You may use the FDIC's BankFind tool to find a list of member banks in your area.

How FDIC coverage works

In the unlikely event that a bank is declared insolvent, the FDIC will act quickly to reimburse depositors. The agency will either issue the HOA a check for the total balance of eligible accounts up to the coverage limit or provide the HOA with new commercial accounts in the same amounts at another FDIC-insured bank.

However, the options may be more complex for HOAs with more than $250,000 deposited at a single FDIC-insured bank. Those with significant HOA reserves or operating accounts—such as extremely large HOAs or those responsible for maintaining pools, luxury amenities or golf courses, for example—may want to consider banking strategies that maximize coverage beyond the FDIC limit.

Increasing the FDIC limit for HOA funds

There are several strategies for maximizing FDIC insurance beyond the $250,000 limit. While dividing assets across multiple FDIC-insured banks is one way to maximize FDIC insurance coverage, this can create many complexities and simply isn't an ideal option for many HOAs.

However, two services—CDARS^®, the Certificate of Deposit Account Registry Service^®, and ICS^®, the IntraFi^® Cash Service^℠ network—can be used to maximize coverage while avoiding the hassle of juggling multiple banking relationships.

"Taking advantage of CDARS and ICS allows HOAs to effectively maintain FDIC coverage through multiple banks while still maintaining the ease and liquidity that they would have by doing business with just one," Esposito says.

How to use CDARS

Simply open a CD at an FDIC-member bank that's also part of IntraFi's network. This bank will distribute your investment across multiple CDs at other participating banks, ensuring that all investments remain below the FDIC limit of $250,000.

How to use ICS

ICS works similarly to CDARS—just for demand deposit or money market deposit accounts. Again, you'll open a single account with a participating FDIC-member bank, and ICS will distribute your funds across multiple participating banks, ensuring that no single institution holds more than the $250,000 maximum.

With both CDARS and ICS, you'll receive consolidated financial and tax statements for your HOA bank accounts and maintain a single point of contact with the original bank.

The bottom line

HOAs have a fiduciary obligation to take all steps possible to safeguard homeowner funds and maintain transparency. Those with substantial assets should also consider options to increase FDIC protection beyond the $250,000 limit.

To maximize coverage for FDIC-insured bank accounts, however, think strategically about the banks and commercial accounts you choose. Connect with a community association banking expert at an FDIC-member institution to help you explore which strategies might work best for your association clients.