Board's Dilemma: How to Safeguard $2.3 Million for Window Replacement Project

At Clinton Mews, a 77-unit co-op in Brooklyn's Clinton Hill, a major window replacement project presented a seemingly enviable issue for the board: Where to hold the $2.3 million set aside for the project? The collapse of the Silicon Valley Bank last year gave many jitters. Deposits with Federal Deposit Insurance Corporation (FDIC) insurance are covered to at least $250,000, which was only a fraction of the funds. The board wanted an option where the co-op’s money was earning interest, accessible for payments and fully insured. 

Three Wishes 

Wanting to take advantage of the current high interest rates, the board considered putting the money into an insured money market deposit account. “Having the money sitting in the building’s operating account wasn’t an option,” says Howard Mandel, president of TKR Property Services. Board members, after all, have a fiduciary responsibility to shareholders to be financially prudent. Knowing the window replacement project would take at least 18 months — with possible overruns — the board began looking at options. “The board had a lot of concerns about having adequate FDIC insurance,” says Mandel, adding that it also wanted to be able to access the funds quickly and easily.

Difficult Math

Certificates of deposit (CDs) were another go-to option for the co-op due to their FDIC insurance coverage and predictable interest rates. However, with varying maturity dates and penalties for early withdrawal, they lacked the flexibility needed for a project potentially spanning longer than anticipated timelines. The board considered laddered-tier CDs, in which the building would have multiple CDs of six months, nine months and 12 months. However, these can be complicated to administer and still don’t accommodate project overruns. “You have to guess how many three-month rate, six-month rate or nine-month rate CDs you need — but what if the permits are late or the project is extended?” Mandel says. “And the board needed to make sure it had FDIC insurance.” 

Fusion Power

The solution was to put money in an insured money market deposit account, which offers FDIC insurance up to $10 million per account. “What an insured money market deposit account does behind the scenes is take the money and put it in numerous CDs,” Mandel says, adding that the multiple investments are all simplified into one account for the client. The upside for the board is that it can access funds without having to wait for the CDs to mature: The bank transfers money into the building's operating account as it is requested by the board. 

Although the rates are slightly lower than CDs, they are still very competitive. And management companies don’t need to have a brokerage account and open numerous CDs themselves. Mandel says Clinton Mews is putting around $1.8 million into the money market account. “If they had to use numerous CDs, they would have to keep records of them, and administering that would be a headache,” he says. “This solution gives everybody peace of mind knowing that they’re getting a good rate, FDIC insurance, and an easy operation to pay for the project.” 

—Emily Myers