Is there any requirement that a HOA deposit association funds in only FDIC insured banks?
No. There is no legal requirement that a board of a community association must only deposit association funds in FDIC insured banks. However, I would think that any operating funds (i.e. funds required to cover current operating expenses) of the association should be deposited only in FDIC insured banks. However, the board may invest reserve funds (i.e. funds which will be required to cover future capital repairs and replacements) in order to generate higher rates of return. In fact, the board has a fiduciary responsibility to all unit owners to make sure reserve funds are invested properly and the board should investigate different avenues of investing. After doing so, the board should develop an investment plan that provides continuity and relative financial safety. The policy may leave the choice of investments to the board or limit investments to the list of permitted investments for fiduciaries (such as “A” rated bonds, municipal bonds, certificates
of deposit, treasury issues, no-load conservative mutual funds and money-market funds, but excludes risky offerings such as stock shares, futures or commodities).
In making an investment decision, the board must consider the safety of the investment. Boards are generally very conservative. Certain types of investments are appropriate for community associations and others are not. The board must also consider that investments must be sufficiently liquid to meet expected and unexpected capital repairs and replacements. The board needs to examine the physical condition of the property to determine its anticipated cash flow needs. It may make sense to break up the types of investments to different maturities so that they come due at different times (short term (1-3 years), long-term (6 years or more), and a time in between a long and short-term (3-6 years)). The board also needs to consider tax liability on investment income.
In summary, the board should (i) maintain operating funds in FDIC insured banks, and (ii) develop an investment plan for its reserve funds pursuant to which it looks to maximize the rate of return which provides for continuity and relative financial safety. The board may consider seeking the guidance of a financial advisor if its board members are unfamiliar with investing strategies.