HOA Bank Accounts: Everything Your Board Needs to Know

Do you need to open a bank account for your HOA but feel overwhelmed by available options? 

I’m not surprised. Ask any HOA board member what aspect of running the HOA they find the least enjoyable, and most will say it without thinking - money management. 

There’s so much to it, after all - collecting fees, dealing with outstanding assessments, paying off HOA loans, and a lot more in between, including opening and managing the HOA bank account. 

In this guide, I’ll help you with that last item on the list. We’ll discuss what bank accounts your HOA needs, how to choose the right banking service, who should be authorized signers, and more. 

So, let’s take it from the top.

How many bank accounts does your homeowner’s association need?

Most of us would have more than one personal bank account. We use checking accounts, saving accounts, deposit accounts, etc. 

A typical business would have a similar setup, with a business checking account, savings account, certificate of deposits account, maybe even a foreign currency account, and so on. 

And the situation is no different with homeowners associations. Typically, an HOA would need at least two separate accounts:

The first one is the operating account

An operating (or checking) account contains the association’s financial fund. This is the money the board would use to cover the daily expenses of the association. This is also the account you use to pay for various services and expenses accrued by the association. Here are just some of the expenses typically paid from the operating account:

• Contracted services like landscaping, general maintenance, security, property management, and so on
• Maintenance of shared spaces
• Association’s insurance
• Applicable taxes
• Legal fees and account fees
• Utilities and bills like heating the common areas, etc. 
• Security,
• Janitorial services,
• Office expenses, etc. 

All these expenses would usually be envisioned and covered in the HOA budget ahead of time. This means that anything out of the ordinary would need to be covered by another fund (see below.)

Who opens the HOA checking account: Usually, the management company as the association is formed.

The other account you need is the reserve account

The easiest way to describe the reserve fund is as your HOA’s savings account. This is where the association would set aside money it might need to cover irregular expenses, unexpected costs, and future large-scale projects. 

Here is just a glance at potential unexpected expenses your HOA might need to cover from the reserve fund:

• Fixes to unexpected issues arising in common area buildings (i.e., roof leaks)
• Major renovations to common area buildings
• New playground equipment
• Major, out-of-schedule landscaping projects, etc.
• Fencing in HOA-controlled areas,
• Improvements to sidewalks (or construction of new ones) and so on.

ADDITIONAL READING: How to conduct a reserve study for your HOA 

Who should be an authorized signer on those two HOA accounts?

First of all, the number of signers and who those people are in your HOA should be based on the association’s governing documents and state laws. 

The entire board should have access to the association’s accounts. Naturally, your HOA should designate specific people to manage its finances - it could be the treasurer, for example, or at least someone dedicated to managing bills and payments and preparing monthly financial reports for the board. 

However, some associations take a different approach to managing bank accounts:

• Some HOAs require all serving board members to sign on any withdrawals or checks. 
• Other associations also make property managers the authorized signers on HOA accounts. 
• And some elect selected board members and make them signers on the accounts. 

What about really large withdrawals? Well, in general, the best practice is to have at least two people required to sign off on withdrawals over a certain amount. The same number of people should be required to sign checks (i.e., the president and another board member or a treasurer.)

How to decide on the right bank for your HOA?

Let’s not sugarcoat this - Figuring out what bank accounts your association needs is simple. 

But choosing the right banking service to open and manage those accounts is a completely different matter. 

Before I share with you some considerations that could help you choose the right bank for your HOA, let me answer a question I hear quite commonly: 

Could an HOA run without a bank account?

Well, technically, yes, particularly if it’s a small association. I’ve heard of associations trying to manage their funds without using a banking service, and I suppose, in theory, this could work. 

However, before you excitedly decide that doing the same solves your HOA bank service challenge, think of the potential impact that not having a dedicated repository might have on your HOA operation and finances:

• No bank account means a huge potential for fraud, for one. Without a dedicated bank account and associated paper trail, it’s hard to monitor whether funds are being spent as intended and money does not venture elsewhere. 
• Fee collection and management would be cumbersome, too, to say the least. Without a bank account, your HOA would rely on collecting fees in cash door-to-door. Naturally, this is possible to do, but not only would it be extremely time-consuming, but it would also raise even more questions about potential fraud.
• Managing payments to contractors without a dedicated banking service in place would be challenging, too, not to mention conducting audits or budget planning. 

In short, managing HOA finances without a bank account would require a lot of trust among board members and the community. This is technically possible to happen, of course. However, I’d strongly discourage this option in favor of opening a dedicated checking account and a reserve account for your HOA. 

What to look for in banking service for your HOA

One of the factors that make choosing a bank for the HOA so challenging is the sheer number of options available on the market. 

Over 4000 commercial banks are operating in the US right now, after all. Granted, not all of them would have branches in your State, but you face an enormous choice nonetheless.  

On top of that, you have several products available from banks. Think of the many interest-bearing accounts like money markets, certificates of deposit, insured cash sweep money markets, and more. 

So, how do you choose which banking service is for you? Well, here are several factors to consider:

Online payment options

Your association will be collecting dues regularly. You could do that by collecting cash and cheques and lodging them to the account, of course. But you could also allow residents to deposit money through online payments should they choose to do so. 

For that reason, consider what payment options the banking service you consider offers. Do they accept e-check or allow you to set up credit card or debit card payments? Or will you have to use checks and manual lodgment only?

Interest rates

Your HOA account should be able to earn interest. So, another thing to consider is what interest rates the service offers on bank accounts. 

Investment opportunities for reserve fund money

Funds in the reserve account aren’t something you’d be regularly using. Unless something unexpected happens, this money might be sitting in the account for quite a long time. So, it would make sense to consider investment opportunities for at least part of the fund. Unfortunately, you and the board might not have much experience in investing, so talk to your banking institution about whether they could recommend strategies for your HOA. 

A word about liquidity. Tying all funds to long-term investments might make it difficult to retrieve should there is an emergency, and you need to tap into the reserve fund. Make sure to talk to the bank about that as well, and consider investing in a way that still leaves some reserve for emergencies. 

Insurance

The banking service should include FDIC (Federal Deposit Insurance Corporation) insurance. However, any third-party insurers would certainly be a plus. 

Note that FDIC insurance only covers up to $250000 per banking institution. If your HOA deals with large finances, it might be worth considering distributing accounts across several banks to cover it all under FDIC insurance.

Support and Reputation

I suppose this goes without saying - You want a bank that will care about your HOA, respond promptly to any issues and inquiries, and address your concerns immediately. 

Finally, the bank should also have a good reputation. The institution you consider might offer everything you’re looking for. But if their customers regularly complain about it, then you should seriously consider whether they are the best option for you. 

Conduct extensive research on the bank. Check their reviews too. See if any other HOAs use their service (TIP: You could ask them for references too.)

In other words, don’t make the decision based alone on what the bank offers. Dig deeper and understand whether customers enjoy using their services. 

And that’s it…

Hopefully, after reading this guide, you know where to start with managing your HOA accounts.