continued from page 23 Check the Competition
Akin to an athlete checking out the field, it is very important for an association to research financial product offerings from multiple providers before locking in their funds. There are significant differences between the rates offered by various institutions for similar products. A quick look at the FDIC’s website on National Rates and Rate Caps (refer to Figure 2) will show a wide range of yields for the same term. As an example, as of July 15, 2024, the average 12-month CD was offering a yield of only 1.85 percent, whereas the Treasury yield for the same duration was 5.21 percent. That’s a difference of 3.36 percent which could translate into tens of thousands of dollars for an association. Also be sure to check the rates your financial institution offers on roll overs of CD’s. Many institutions will offer ‘teaser’ rates to first time clients but the rates on renewal may be very different.
Mitigate Risk
A common piece of advice with regard to financial planning is “don’t put all your eggs in one basket.” This was reinforced by the turn of fortunes of SVB and Signature Bank last year. It is surprising then, that many associations still have funds well in excess of $250,000 in a financial institution. Per FDIC’s current rules, only deposits of $250,000 are protected at each FDIC insured bank. To ensure funds are protected by FDIC, investments should be placed in multiple institutions, so that funds in any one institution do not exceed $250,000. For associations that must maintain more than $250,000 at the same bank due to cash-flow, liquidity, and project payment needs, talk to your banker about setting up an FDIC insured- cash sweep (ICS) process.
Review Performance
Last but not least is having a process in place to review past performance and learning from experiences so that we can make the necessary adjustments to improve and achieve our goals.
As you assess your association’s investment management process – would it make the Olympic podium?
—Gautam Gauba is the founder of Gallopify, a fintech firm that works with management companies and community associations to optimize community associations’ returns on investments. The views expressed herein are the author’s personal views and should not be taken as financial advice.
Gautam.gauba@
gallopify.com
24 September | October 2024
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