Level Up Your Community Association’s Savings With Strategic CD Laddering

Community association managers juggle many financial responsibilities. While some can be planned for, others cannot. One strategy to bridge the gap is certificate of deposit (CD) laddering.

CD laddering spreads a community association’s reserve funds across multiple CDs¹ with staggered maturities. The goal of a CD ladder is to obtain a higher yield on deposits with CDs that mature during regular intervals, making funds accessible while maintaining liquidity standards. This allows scheduled access to cash while earning higher returns than regular savings accounts. These higher returns can also help offset rising insurance premiums and project costs due to inflation.

What Is a CD Ladder?

Alliance Association Bank offers certificates of deposit with terms from 30 days to 60 months. A CD ladder typically focuses on shorter terms of up to one year. A simple laddering strategy would include opening four CDs for terms of three, six, nine and 12 months. In this scenario, a CD matures every 90 days, providing an “off-ramp” where the association can access the funds or renew the CD if the funds aren’t needed.

Alliance Association Bank can also create CD ladders for associations with significant reserve funds. The bank is part of the IntraFi network of financial institutions, which provides access to multimillion-dollar FDIC insurance coverage through the Certificate of Deposit Registry Service (CDARS)². Following the CD laddering strategy, funds are placed into accounts issued at other banks in the network — in increments below the standard FDIC insurance maximum — so that both principal and interest are eligible for FDIC protection. As a result, associations can access the benefits of extended FDIC coverage and the convenience of one seamless relationship with Alliance Association Bank.

For example, if an association has $1 million in reserves and plans a $500,000 paving project in six months, it can invest $500,000 in two $250,000 six-month CDs. The remainder could be invested in shorter- or longer-term CDs, depending on liquidity requirements. Each plan can be tailored to an association’s unique needs, taking advantage of promotional interest rates and other opportunities.

Investing in CDs requires a $5,000 minimum deposit, but there are no fees to establish a laddering program. Associations usually invest reserve funds — not operating funds — for CD laddering. The amount to invest depends on upcoming projects noted in the association’s reserve study and any other liquidity requirements. Your banker can review these needs with you and design a customized strategy for your association.

Why CD Laddering?

CD laddering offers many advantages for community associations and HOAs:

• Available cash

  Longer-term CDs can provide greater returns, but community associations often need ready access to money. A mixture of maturity dates offers the best of both worlds. With CD laddering, associations invest in CDs with short, medium and longer terms, making funds available at regular intervals. 

• Renewable strategy

  As one CD matures, the funds can be reinvested in a new CD to maintain the strategy. 

• Financial flexibility

  Shorter-term CDs — one year or less — offer greater financial flexibility in the ever-changing environment of association boards. 

• Funds are insured

  CD investments through Alliance Association bank are eligible for CDARS, which provides access to FDIC insurance coverage above standard limits. Deposits are divided into amounts under the standard FDIC maximum of $250,000 and placed in deposit accounts at banks participating in the CDARS network.

Work With an Experienced Banker

Alliance Association Bank is devoted exclusively to the rapidly growing HOA and community association industry. We work with community management companies nationwide, providing top-tier banking and technology solutions.

Our experienced community association bankers take the time to understand your association’s needs and plans. We use our knowledge and expertise in the industry to develop CD ladders and other strategies to maximize your association’s financial flexibility. To learn how we can assist you, connect with one of our experienced relationship officers today.