A Co-op Consolidates – and Protects – Its Reserve Fund

In September, Kevin Au got a nice piece of mail from a bank. Au is treasurer of the co-op board at Dunolly Gardens, a 350-unit apartment property in the Jackson Heights neighborhood of Queens. 

The mail Au received was the statement for a new bank account he had opened a few weeks earlier for Dunolly Gardens’s reserve fund. The nice thing about the bank statement was that it was just one statement from just one bank. Before September, Au had to juggle nine separate accounts at nine different banks to keep all of the several million dollars in the co-op’s reserve fund properly insured. 

“Now I have a lot less to keep an eye on,” says Au. “I’m able to focus my attention on more things by not having to pay attention to all these accounts.” 

Dunolly Gardens has to keep a lot of money on reserve – currently about $3 million – to cover the cost of maintaining the property, which first opened in 1939. The six brick buildings at Dunolly Gardens, arrayed around a large central garden, require facade inspections and repairs every five years under the city’s Local Law 11 – along with a lot of maintenance. 

“Our capital-improvement needs are not like our neighbors’,” says Au. “With buildings this age, there is always something to work on. Facade work is pretty much constant.” 

Bank accounts are typically insured by the Federal Deposit Insurance Corp. (FDIC), which protects depositors in case a bank suddenly goes out of business. But FDIC insurance only covers up to $250,000 per depositor, per bank. To make sure their money was fully insured, Dunolly Gardens had to keep accounts at several banks. “We split the money up,” says Au. “We had about nine accounts.” 

In September, Au opened the new account at Metropolitan Commercial Bank (MCB), an FDIC-insured bank headquartered in New York City. This new “Ultra Money Market” bank account can hold much more than $250,000 and still provide FDIC insurance for all the funds. That’s because MCB has partnered with several other banks. When the amount of money in one of MCB’s Ultra Money Market accounts rises above the FDIC limit, MCB transfers the extra money to one or more of its partner banks, into accounts that are under the FDIC’s $250,000 limit, so that they are still fully insured. 

“This allows our clients the safety and guarantee of FDIC insurance while still offering a highly competitive yield,” says Laura Capra, senior vice president and head of retail banking for MCB. “It is a reciprocal deposit program.” The partner banks transfer an identical amount of money, dollar for dollar, back to MCB, from their own accounts that might otherwise be over the FDIC limit. That way, all of the banks continue to have the same amount of money on their balance sheets to make investments, such as loans, and all the money in the program is fully FDIC-insured. 

As result of this web of partnerships, Au has fewer bank statements to read every month. “I was able to consolidate six accounts into one account,” he says. Dunolly Gardens now has its $3 million in reserve funds in a large account with MCB, plus two smaller accounts with other banks. “We kept two other accounts with other banks that we had long relationships with,” Au explains. 

MCB also offers competitive interest rates, according to Capra. Dunolly Gardens earned an interest rate from MCB on its reserve account that was an improvement over the interest rates offered by other banks, which, according to Au, ranged from 1.5 percent to 1.75 percent in early September. 

“The interest rate is a lot better,” says Au, adding that his mailbox is also a lot less full.