Jeffrey Jerome
HOA Reserve Fund Management
Reserve Fund Protection — CDARS Guide
Note to reader: Figures below are illustrative examples drawn from a real HOA — substitute your association's actual reserve balance and contribution scenarios. The framework, analysis, and recommended approach apply to any HOA with reserves approaching or exceeding $250,000.
Current Reserve Position
Reserve Balance
$341,300
Your bank — illustrative figure
FDIC Insurance Limit
$250,000
Per depositor, per institution
Uninsured Exposure
$91,300
Funds above FDIC limit — currently at risk
The Problem
The association's reserve fund held at your bank stands at $341,300 — above the $250,000 FDIC insurance limit. This means approximately $91,300 of HOA funds are currently uninsured and at risk in the event of a bank failure. As reserve contributions increase, this exposure will grow further.
The Solution — CDARS via IntraFi Network
CDARS (Certificate of Deposit Account Registry Service) is offered through the IntraFi Network — a system that allows the HOA to work with a single financial institution while automatically spreading funds across multiple FDIC-member banks in amounts under $250,000. The result: full FDIC insurance coverage on the entire reserve balance through one relationship, one statement, and one point of contact.
How It Works for Your HOA
- HOA deposits reserve funds with one IntraFi member institution
- Institution automatically allocates funds in sub-$250K increments across its network of member banks
- Each increment is separately FDIC-insured up to $250K
- HOA receives one consolidated statement — no need to manage multiple bank relationships
- Funds remain in CDs, typically earning competitive interest rates
Current vs. CDARS Protection
| Factor | Current (Single Bank) | With CDARS |
|---|---|---|
| Reserve balance (illustrative) | $341,300 | $341,300 |
| FDIC-insured amount | $250,000 | $341,300 |
| Uninsured exposure | $91,300 | $0 |
| Bank relationships to manage | 1 | 1 (network handles the rest) |
| Statements | 1 | 1 consolidated |
| Interest earned | Standard savings/money market | Competitive CD rates |
| Full reserve protection | No | Yes |
Why This Matters Now
As reserve contributions increase, so does the uninsured exposure.
- Under a conservative contribution scenario (e.g., 12%), the reserve balance grows substantially each year — uninsured exposure increases unless action is taken.
- Under a more aggressive scenario (e.g., 15%), the gap above FDIC limits widens further.
- HOA boards have a fiduciary duty to protect association funds. Leaving reserve funds above $250K in a single institution without CDARS protection is an unnecessary and avoidable risk.
- CDARS is widely used by HOAs, municipalities, and nonprofits precisely for this purpose.
Considerations
One trade-off to understand before enrolling.
- Interest rate spread: Your bank retains a small spread on the interest earned — meaning the HOA receives slightly less than the headline CD rate. This spread is not published but is standard across all IntraFi member banks. The net yield is still competitive and comparable to Treasuries or government money market funds.
- CD liquidity: CDARS funds are locked in CDs for their term. If the HOA needs emergency access before maturity, early withdrawal penalties may apply. This is mitigated by laddering (see below) and by keeping a portion in ICS (demand deposit) rather than CDARS.
- Brief settlement window: During fund transfers between network banks, balances can technically exceed FDIC limits for a very short period. This is a nominal and rarely material risk.
Return on Investment — Current Rate Environment
CD rates are in the mid-3% range in 2026 following Fed rate reductions in late 2025. IntraFi rates reprice weekly.
- At an estimated 3.5% APY on $341,300 in reserves, the HOA would earn approximately $11,946/year in interest — funds that flow directly back into the reserve account.
- This effectively reduces the net cost of reserve funding: interest income offsets the annual contribution requirement.
- As the reserve balance grows toward and beyond $500,000, annual interest income increases proportionally — providing a compounding benefit over time.
CD Laddering Strategy
A CD ladder staggers maturity dates across multiple CDs so that a portion of reserves becomes available at regular intervals. This balances higher yields on longer-term CDs with liquidity for near-term capital needs — especially important once the reserve study identifies upcoming expenditures.
| Tranche | Amount | Product | Term | Est. Rate | Est. Interest | Purpose |
|---|---|---|---|---|---|---|
| Tranche 1 — Liquid | $85,000 | ICS | On demand | ~3.00% | +$2,550 | Emergency access — no penalty, no lock-in |
| Tranche 2 | $85,000 | CDARS | 6 months | ~3.40% | +$1,445 | Mid-term projects from reserve study |
| Tranche 3 | $85,000 | CDARS | 9 months | ~3.50% | +$2,231 | Rolling reinvestment as ladder matures |
| Tranche 4 | $86,300 | CDARS | 12 months | ~3.60% | +$3,107 | Maximum yield on longer-horizon funds |
| Total | $341,300 | +$9,333/yr | Fully FDIC-insured via IntraFi network |
Rates are illustrative based on mid-2026 market conditions. IntraFi rates reprice weekly at enrollment — once a CD is opened, the rate is locked for the full term. Reserve study findings should inform tranche sizing and terms before enrollment.
Rate Lock and What Happens at Maturity
- Rates are locked for the full term. Once a CDARS tranche is opened, the interest rate is fixed for the life of that CD — regardless of what IntraFi rates do week to week. This protects the HOA if rates fall during the term.
- At maturity, the HOA has a grace period (typically 7–10 days) to choose one of three options: (1) withdraw principal and interest, (2) roll over into a new CD at the current IntraFi rate for the same or a different term, or (3) redirect funds to the ICS liquid tranche.
- If no action is taken, most banks will automatically renew the CD at the then-current rate for the same term. Your property manager should calendar each maturity date and confirm the board's direction in advance.
- The ladder rolls continuously. As each tranche matures, it is reinvested — keeping a portion always liquid (ICS) and the remainder earning CD-level yields at the rates available at the time of reinvestment.
- ICS (Tranche 1) has no term — it earns interest daily and the rate adjusts with market conditions. No maturity date, no action required.
What if the HOA needs emergency funds from reserves — e.g., a $25,000 repair?
- Tranche 1 (ICS) covers this. The $85,000 liquid ICS tranche is accessible on demand with no penalty. A $25,000 draw leaves $60,000 still in the liquid tier — no CD early withdrawal required.
- State HOA law applies. In most states, transferring funds from reserves to operating requires a board vote, and the borrowed amount must be repaid to reserves within a defined period (12 months in California under Davis-Stirling; check your state's HOA statute).
- Known reserve components. If your reserve study includes an annual allowance for major repairs, those expenses are anticipated and should be pre-funded, reducing the likelihood of emergency draws.
- Best practice: Size Tranche 1 (ICS) to cover at least one full year of expected near-term reserve expenditures. Adjust tranche sizing after your next reserve study is received.
Recommended Next Steps
Board Action Items
- Confirm your bank is an IntraFi Network member — most major banks and community banks participate. Search the IntraFi member directory at intrafi.com. If your bank is a member, no bank change is required.
- Direct your property manager to contact your bank representative to enroll the reserve account in ICS/CDARS and establish full FDIC coverage on the reserve balance.
- Establish enrollment prior to your next fiscal year start to ensure full protection as the reserve balance grows.