Managing Your Community Association’s Funds in a Declining Rate Environment
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Inside Cogent        Blog        Managing Your Community Association’s Funds in a Declining Rate Environment
Managing Your Community Association’s Funds in a Declining Rate Environment
January 22, 2025

Managing Your Community Association’s Funds in a Declining Rate Environment

Fall temperatures were not the only thing that started dropping last September. Interest rates declined for the first time in over four years – triggered by the Federal Reserve cutting the fed funds rate – with more reductions anticipated throughout 2025.

While declining rates are typically concerning for consumer savings, Community Associations – HOA’s and Condo Associations – will also likely feel the impact of less return on their Reserve and other interest-bearing accounts. The upcoming year is poised to become a balancing act for the 49,800 Community Associations currently in Florida, as they face challenges on various fronts – the likelihood of less income from lower interest rates and the continued threat of higher operating expenses. Additionally, an estimated 19,000 Condo Associations throughout the Sunshine State may feel the pinch of new mandatory funding of structural reserve line items in 2025, as required by Florida SB 4-D Building Safety Law .

The culmination of these changes could very well add up to a demanding year for Community Associations to stay on top of managing the financial wellbeing of their communities. The question looming large in their minds – How best to manage their Association’s funds while preserving safety and return, and meeting all the financial requirements of their communities? The following key strategies will help board members navigate this very question:

Review Savings Strategies

As the saying goes, knowledge is power. Make sure that the entire board understands the current savings strategies in place, including investment types, yields, maturity dates, and safety profiles. Identify which accounts will slate into the plan for the upcoming year, and which may need adjustments.

The board should review the upcoming budget to assist in matching account types and balances with the Association’s long and short-term cash flow needs. Safety of investments should act as the North Star in guiding the board with all financial decisions. Make sure that the board has a full understanding of FDIC insurance guidelines and are placing funds with sound financial institutions. Bauerfinancial.com is one of a handful of resources that rate banks and provide key information about their financial well-being.

The following are the most commonplace investment/deposit options:

  1. Operating Checking: transaction account used to pay the association’s upcoming expenses.
  • Money Market Account (MMA): fully liquid interest-bearing account in which funds are accessible anytime without penalty and are readily available to meet upcoming needs. It is important to monitor MMA rates as they are subject to periodic adjustments.
  • Certificates of Deposit (CD): terms typically range from 30 days to 5 years with a fixed interest rate. While CD rates may be declining, they offer stability and guaranteed funds. A smart investment strategy may include “laddering” CDs, or staggering terms and maturity dates to match the association’s cash flow needs. This helps maximize return while meeting the financial needs of the community. Explore higher rate options with longer-term CDs as part of your financial plan.
  • Flexible Certificate of Deposit: A CD that offers a fixed rate with flexible terms which may allow a withdrawal without penalty and/or ongoing deposits to the account. Such hybrid CDs are a great option which include a fixed rate and the flexibility to access funds in the short run if needed.

Cogent Bank offers a 9-Month Freedom CD which includes a fixed interest rate for 9 months, one withdrawal without penalty per calendar month, and unlimited deposits to the account. Clink on the link above for full account details.

  • Insured Cash Sweep (ICS) Accounts: ICS Sweep Accounts offer access to interest-bearing accounts with multi-million-dollar FDIC insurance coverage through one banking relationship. An intermediary company places funds with multiple approved financial institutions, providing one monthly bank statement listing all accounts. Typically, the interest rate is lower than standard rates due to the “middleman” company and services provided.
  • Other Investments: Associations may seek options from brokerage firms when rates are low. It is important to read your governing documents to check for any guidelines about types of investments. Once again, safety is all-important so make sure you are not trading one problem for another.

Other Key Considerations   

The tendency is often to focus solely on preserving return on investments/deposits in a declining rate environment. It is equally important to look at other areas that impact your community’s financial position such as alternate income sources, cost savings, and expense control. Let’s explore a few of these key areas to consider as part of the overall strategy to safeguard your association’s financial well-being.

  1. Review Reserve Study and Funds: Conduct a thorough review of the Association’s most recent reserve study. Look at funds earmarked to complete needed improvements to identify potential cost-saving measures and prioritize essential projects. Consider consolidating reserve fund accounts to improve return and cut down on administrative oversight and costs. Explore alternate funding sources such as special assessments to supplement reserve balances needed for key capital improvements.
  • Enhance Budgetary Controls: Implement strict budgetary controls to monitor expenses and identify potential areas for cost savings. Conduct regular budget reviews and make any material adjustments needed. Work closely with your management company in overseeing expense control efforts – keep in mind that the board is responsible for overseeing the budget.
  • Explore Financing Options:  Consider the other side of declining rates – lower loan rates. Is it time to pull the trigger on long-awaited projects, deploying reserve funds and shore up with low-interest rate loans? Have you approached vendors to inquire about potential discounts? Insurance is a prime example of realizing potential cost savings on annual premiums by paying them in a lump sum. If cash flow does not allow for a one-time payment, low-interest insurance premium financing options may still result in overall cost savings.
  • Adopt a Transparent Communication Style: Communicate with the owners regarding the financial well-being of the community on a regular basis. Coping with declining interest rates is something most people can relate to in their own lives. By maintaining open lines of communication, expectations will be set and will soften the blow if any adjustments to general dues or special assessments become necessary.

Moving Your Association Forward

In Chinese, the word “crisis” can mean danger, or it can mean opportunity. All challenges can be seen as either a danger or an opportunity – it is all about perspective. While the potential negative impact of declining rates on your community’s balance sheet can trigger uncertainty, it is also an opportunity to review and realign financial strategies with current needs.

Cogent Bank’s team of experienced professionals can help your Association as you implement your financial plan. Whether it is time for a check-up, or you have uncovered a need during the budget review process – we’ve got you covered. Learn more about how Cogent can help with streamlining Collections, Treasury Services, any Loan needs (project financing, insurance premium financing, emergency lines of credit), Reserve accounts, and much more.

Cogent Bank is headquartered in Florida with locations throughout the state to serve you. Cogent is rated as a 4-Star, “Excellent” bank by BauerFinancial, an important consideration regarding the safety of your community association’s funds. Our Association Banking Experts live and work in your communities, a key differentiator in our approach to assisting you.

Reach out today to discover how we can assist your association. We look forward to partnering with you as your community association bank.

Disclaimer: The information contained herein is for informational/educational purposes only.  The views and opinions expressed in this document may be those of the individuals and may not necessarily reflect those of Cogent Bancorp and its subsidiaries and affiliates, or the entities they may represent. Content contained herein may be used in connection with the advertising and/or marketing of products offered by Cogent Bank or Cogent Private Wealth. The material is not intended to provide or substitute for legal, tax, or financial advice or to indicate the availability or suitability of any Cogent Bank product or service. You should consult with a legal, financial, tax, or other appropriate professional(s) for your specific needs and/or objectives before making any decisions.