Can Your Community Association Access Money in a CD Before the Maturity Date?

ByRussell Munz
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Condominium associations and HOAs often amass sizeable amounts of cash in their Reserve Funds. The Board is charged with safeguarding those assets and investing only in conservative vehicles. The Certificate of Deposit, better known as a CD, has long been the instrument of choice for investing association funds. The interest on the money is desirable to your association, but what if something unexpected happens and your association needs that money now?

The trade-off for investing the association’s money into a CD is a higher rate of interest than simply leaving the money in a checking account. In exchange for agreeing to let the bank keep the money invested for a period of time, the bank offers more desirable interest rates to the depositor. Interestingly (no pun intended), early withdrawal doesn’t change the interest rate on the invested money. However, the bank will charge an early withdrawal penalty if the money doesn’t stay invested as promised.

Here is a sample schedule of fees associated with a premature withdrawal of funds from a bank-issued Certificate of Deposit Fund

Early Withdrawal Fee:
Maturity of 1 Month…………………………………………………………….30 Days Interest
Maturity of 3 to 10 Months………………………………………………….90 Days Interest
Maturity of 11 to 23 Months………………………………………………180 Days Interest
Maturity of 24 to 60 Months………………………………………………365 Days Interest

If your association had tied up $10,000 in a CD that matured in 60 months and needed the money before the 60-month maturity date, it could still retrieve the principal amount of deposit but would be penalized based on the days left until maturity. In other words, the $10,000 would still be intact and without risk but the interest might be eaten up by the early withdrawal fees.

CDs are still a safe and relatively risk-free method of safeguarding the association’s money, even if early withdrawal penalties are incurred should the money need to be retrieved for the association’s immediate use. For more information on how best to safeguard and invest your condominium association or HOA money, speak to Community Financials today. Our financial experts can help guide you through the decision-making process and help you safeguard your association’s money.