Homeowners associations tend to handle large amounts of money. To manage these funds properly, boards should seek professional HOA bank services.
What Are HOA Banking Services?
HOA banking services are services that a banking institution provides that specifically cater to homeowners associations, condominiums, and other communities. These services are designed to make it easier for an HOA to transact with the bank, collect dues, and process payments. Due to the popularity of HOAs nationwide, more and more banks have come up with services that address the unique needs of HOAs.
The Importance of HOA Bank Services
Although many homeowners associations are structured like corporations, they don’t operate the same way financially. Associations have specific needs and procedures when it comes to financial management. As such, it is important to look for a bank that fits your HOA perfectly.
Some HOA boards do attempt to manage their funds alone without the help of a bank. This is not good practice, though, as it can open the association to a world of problems. For one thing, there are limited internal controls, which can lead to potential fraud.
Additionally, the need for homeowners association bank services is clear when you think about timely payments. Homeowners have to pay monthly dues to the HOA. And while collecting checks door-to-door is certainly an option, it is not an efficient method. Plus, there is a lot of room for error and missing payments.
On the subject of payments, associations also need to make their own. As you may very well know, HOAs can’t operate on their own. More often than not, you need the help of vendors to provide services outside of the association’s expertise. With bank services, you can make sure to pay your vendors on time.
What Services to Look for in a Bank for HOA
When deciding which bank is right for you, it is critical to look for certain services that will help your HOA. Some of the top HOA banking services to look for include the following:
1. Several Payment Options
The most popular methods of dues payment in the past were through the use of cash or checks. Over time, though, online banking gained traction and is now preferred by many homeowners. But, that doesn’t mean you should solely offer online payments, especially if your community is home to a diverse demographic. As such, look for a bank that offers several payment options, both online and offline.
Some payment options to consider include:
- ACH draft
- e-Checks
- Credit card
- Debit card
- Checks
A good bank should also be able to provide you with lockbox services. Additionally, setting up an account with them should come easy. Homeowners don’t like to jump through too many hoops just to be able to pay their dues.
2. Homeowner Portal
When searching for HOA bank services, a homeowner portal is a must. Having a homeowner portal makes it easier for members to check on their accounts. It also cuts out the middleman, as homeowners can view their balances and payment schedules straight from the web instead of requesting the board for account statements.
3. Competitive Interest Rates
It is also a good idea to check out the interest rates that banks have on offer. The HOA bank account should be able to earn interest. Additionally, make sure to seek out competitive interest rates on the money market and CD offerings.
4. Investment Strategies for Reserves
Because the reserve fund will likely sit in an account untouched for several years, it is wise to invest in them. But, you also need to be able to liquidate the funds at a moment’s notice. On top of that, safety and yield are among your top considerations, too.
Many HOA boards don’t have experience when it comes to investing the association’s reserves. As such, it is best to look for a bank that can come up with investment strategies that are customized to the needs of your HOA.
5. Loans
Homeowners associations are no strangers to capital improvement projects, and these projects usually require quite a large sum of money to get going.
Therefore, you should check out the loan requirements and terms of the banks you’re considering. A good bank should have association loans available for such projects with reasonable rates.
6. Targeted Reporting
Bank reports come in handy when you want to take a snapshot of the association’s financial health. Not all associations, though, have access to such reports. Therefore, you should look for a bank that provides you with targeted and detailed reports that can help you make smart decisions.
7. Fraud Prevention
Look for a bank with build-in fraud prevention tools and services. These tools should be able to detect potential fraudulent activity early on and have systems in place that lock the account down in the event of a breach.
Other Features to Consider
Aside from all of the above HOA bank services, there are some additional features you should take into account.
1. Dedicated Managers
Homeowners associations are unique in terms of financial operations. Thus, not all banks fully understand how they work and what needs they have. However, there are some banks that specialize in HOA banking. These are the banks you should look for.
You should also make sure that the bank you choose has dedicated managers with experience in handling HOAs. Many states have specific banking laws that associations must follow. One example that comes to mind is California, under Civil Code Section 5380.
2. Integration With HOA Software
In today’s hyper-connected world, program-to-program communication is absolutely necessary. Manually extracting data from one system and then feeding it to another is not only inefficient but there is also a high margin of error. With this in mind, look for a bank that integrates seamlessly with HOA software.
3. Reliable Customer Support
Nobody likes a bank that doesn’t respond in a timely manner. When you need something, especially if it’s urgent, your bank should be able to address your concern immediately. That is why you must look for a bank that offers reliable and responsive customer support.
Apart from just answering your questions, they should also know how to offer solutions. While empathy goes a long way, your HOA deserves a bank that actually helps you resolve your financial problems. Furthermore, a good bank should also help you make a smooth transition from your old bank.
4. Good Reputation
A bank can have all the features and services you’re looking for. But, if they don’t have a good reputation, then it should raise some red flags. If too many associations are dissatisfied with a particular bank, that’s a sure sign to back out. Do your research, check out reviews, and understand the history of the bank to know whether or not they are the right fit.
Frequently Asked Questions
How many bank accounts does an HOA need?
In general, an HOA needs two bank accounts: an operating account and a reserve account. The operating account is for day-to-day or regular transactions, while the reserve account is where the HOA keeps its reserve fund. Not all HOAs are required to maintain a reserve fund. However, it is still a good idea to maintain one to protect the association from unexpected expenses and the cost of major repairs or replacements.
Who should have the authorization to access HOA bank accounts?
The number of signatories an HOA should have for its bank accounts depends on two things: state laws and the governing documents. Generally, the entire HOA board should have access to the bank accounts. This way, everyone can practice internal controls and monitoring, keeping each other in check. The treasurer, though, can be responsible for managing payments and collections.
When it comes to signatories, some HOAs require all board members to sign for transactions. Others only require a few. For fraud prevention, it is a good idea to have at least two signatories. Don’t let a single person have full control or power over the HOA’s bank accounts.
An HOA board can also give the HOA manager limited authority to access bank accounts. For example, the manager can make withdrawals or authorize payments up to a certain dollar amount. Anything beyond that will require the board’s approval.
Are HOA banking services required?
Unless state laws or the governing documents say otherwise, an HOA does not need to seek banking services. That being said, banking services do make it easier for boards to manage the association’s finances. It is also better for fraud prevention, as most banks have security tools and systems in place for fraud detection. Additionally, banking services allow boards to maintain a paper trail.
All Things Considered
Without proper HOA bank services, an HOA can’t collect dues in a timely and effective manner. Beyond that, vendor payments may stall, the reserves may be improperly invested, and accurate reports wouldn’t be available to board members. All of these things will inevitably complicate the finances of the association. The good news is, associations can always make the switch to a bank that specializes in HOAs and provides the services they need.
Cedar Management Group is partnered with a reputable bank that offers all the services an HOA requires. Call us today at (877) 252-3327 or contact us online to learn more about our services.
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