This may be the most common question we are asked. However, there is no universal answer. The amount of money that an association should have at the present time depends on many things: the age of the community and/or reserve items, how soon reserve items will need to be replaced, and how many items are on the reserve schedule. The best metric to measure how accurately funded your association should be is the percent funded model:
The following are general measures to the health of an association based on the percent funding model:
0-30% funded: poorly funded
30-70% funded: fairly funded
70-100% funded: well funded
100+% funded: very well funded
How do I know whether to place an item in the maintenance schedule or reserve schedule?
The key to this question is the figuring out if the item has regular and repeating intervals. As a general rule of thumb, any item that will need to be replaced in the future with a useful life when new of more than a year should be a reserve item. Anything less than a year should go in the operating budget. One common item that skirts the line is landscaping. In this case, we believe it makes the most sense to have the long-lasting portions (replacing heavy shrubs and grass) in the reserve schedule and the general upkeep like grass-cutting, mulching, and pest control in the operating budget. Associations should just be careful not to fund the item in both operating and reserves.
Are our reserves completely safe in the bank?
Not necessarily. The FDIC only insures up to $250,000 for each association (delineated by Tax ID). For the record, that $250,000 also includes accrued interest. So, for example, if an association has reserves of $1,000,000 in only one bank they are exposed up to $750,000. However, there is no limit to the number of different FDIC-insured institutions you can have your money with. So with $1,000,000 it would make the most sense to have that money split up into four or five different bank accounts to eliminate financial risk.