Maximizing Your Reserve Fund Investment

April 2022

When your condominium building first opened few were concerned with the reserve fund.  There was a zero balance and the building was new so it wasn’t top of mind.

Over the years the fund builds up through monthly contributions.  After twenty or thirty years that balance can be millions of dollars.  While this sounds like a lot of money, it can be quickly depleted over a short period by replacing elevators, windows, roof, building façade and major equipment.

During the period when a reserve fund should be growing, communities strive to add more to the fund than is used each year.  It makes no sense for most of these funds, which are being set aside for use in future years, to sit in accounts that do not earn interest income.  The balance should be invested to obtain the maximum possible return which helps the fund grow while keeping owner contributions as low as possible.

The Condominium Act limits reserve fund account investing to eligible financial instruments that are 1) issued or guaranteed by the Government of Canada or one of the provinces; or 2) issued by an institution located in Ontario insured by the Canada Deposit Insurance Corporation (CDIC) or the Federal Services Regulatory Authority of Ontario (FSRAO).  These are supposedly safe investments that guarantee return of principal.

Condo boards are rarely involved with daily or weekly banking; this is typically handled by the condominium manager.  The condo board, more specifically the treasurer, should be involved in determining which financial institution works with the corporation, ensuring invested funds receive the best possible returns, and obtaining value-added benefits consistent with being a high net-worth client.

The most popular investment instrument for reserve fund monies is Guaranteed Investment Certificates or GICs.  These promise return of the principal amount if held to maturity plus an annual return that increases as the term increases to a maximum of five years.

Most condominium corporations purchase GICs from the financial institution where they maintain their bank accounts.  Investing large sums with a financial institution would make an individual a high net- worth investor qualifying for “white glove” treatment and perks.  While the same should be true for condominium corporations, this is not always the case.  It can be convenient to work with the financial institution that handles corporation banking, but investing larger sums with them may not ensure the best possible return.

Parama Credit Union Limited is a financial institution specializing in working with condominium corporations and investing reserve fund monies.  Some institutions require a minimum of $1 million in funds before working with a condominium corporation and offer a lower return on your invested funds.  Parama provides competitive rates and value-added benefits.  There are no account fees.  For security, the account can only be accessed by a single identified individual.  The institution assigns to your corporation a financial advisor to help optimize your reserve fund assets to meet future funding requirements at no additional cost.  They offer a combination of fixed-term and cashable GICs to help manage your cash flow.  The advisor is available to attend board meetings to answer questions about the program.  Parama Credit Union is a local institution that diverts profits back into the local community and jobs to the local economy.