Questions to Ask Potential Banks

Published in the ECHO Journal, June 2010

Selection of the banking relationship for a homeowner association is just as important as the choice of any other vendor and should be given careful consideration. Interest rates, charges and fees vary widely and can have a serious impact on the association’s bottom line. Choosing the local bank or a board member’s favorite broker may not be the best path.

Common Interest Developments are unique in their banking needs. The association has multiple deposits throughout the month, usually has dual signature requirements and often has a volunteer keeping track of the funds. Although the CID is usually a non-profit organization, it is still considered a commercial account by the bankers and brokers; thus it does not qualify for many of the “special deals” advertised, which are frequently limited to personal accounts. Officers and any other signers on the account may change at least once a year. It can be quite time consuming to keep up with all those signature cards if your funds are scattered in several banks.

The following list of questions will yield helpful information when a board is choosing the right place for its association funds:

1. Does the bank have personnel or a specialized department familiar with the homeowner association industry? This can make a huge difference in the frustration and efficiency levels for your treasurer or bookkeeper.
2. Are all accounts insured by FDIC insurance?
   1. Remember that this insurance is limited to $250,000 per institution, per taxpayer identification number (through 12/31/2013).
   2. Many association documents require that funds be deposited into FDIC insured accounts (as opposed to SIPC insurance for most brokerage accounts or special internal insurance programs offered by some banks).
3. What are the terms and fees for the account in question?
   1. How many checks can be written per month without charge?
   2. How many deposits can be made per month without charge?
   3. Will the operating and reserve checking accounts earn interest?
   4. Is on-line banking offered and, if so, are there charges?
   5. What are the charges for returned items, stop payments, wire transfers (in and out of the account)?
   6. If this is an interest bearing account, how often will the rate change? (Money market accounts frequently begin with a higher interest rate that drops much lower in 3 – 6 months.)
4. How are signature cards handled?
   1. What personal information is required from the board members?
   2. Do board members have to go into the bank in person?
   3. Can the management company be authorized to discuss the account or make transfers within the bank without being an actual signer on the account?
   4. How difficult is it to update the signature card when there is a change in directors or officers? (Do the outgoing officers have to sign off?)
5. What will be required to open the account?
   1. Articles of Incorporation
   2. Minutes
   3. Notarized copy of the list of the current officers
   4. Federal Tax identification number
6. Will the bank provide a “duplicate original;” i.e., mail a second copy of the bank statement directly to the association’s treasurer in addition to the manager or bookkeeper? If so, is there a fee?
7. Does the bank provide lockbox services for assessment payments? (This program allows members to mail assessments payments directly to the bank for immediate deposit into the association’s account.)
   1. What are the charges?
   2. Is there automatic payment deduction (ACH) available for the homeowners and,if so, are there any fees for that service?
   3. Can the homeowner make online payments?
   4. What is the method of reporting back to the association? Can it be made compatible with the association’s accounting program?
   5. Will the bank assist with ordering coupon books?
8. Does the bank provide a debit card for petty cash expenses?
   1. What limitations can be placed on the card for security?
   2. What fees may apply?
9. Does the bank provide any CD placement service for excess funds?
   1. How does the service work?
   2. What is the procedure for placing or withdrawing funds?
   3. How often are statements provided?
   4. Are statements in summary form, or individual reports on each placement?
   5. Is there a fee for coordinating the placement?
   6. How are renewal reminder notices provided?
   7. What controls are established to determine where the funds are deposited?
   8. What controls are established to assure that the CD placements are not “doubled up;” i.e., not making 2 or more deposits into one outside bank and thereby exceeding the FDIC limits?
10. Is there any form of automatic sweep that can be set up if funds on deposit exceed the $250,000 FDIC limit?
11. Does the bank provide a debit card for petty cash expenses?
    1. What amounts and terms are available?
    2. What documentation is required?
    3. What fees are involved?>/li>
    4. What is the turn-around time for approval and funding?
    5. Will the loan remain with the originating bank or be bundled and serviced by some other entity in the future?

With this information in hand, the association is better prepared to make a good business judgment regarding the investment of the association funds.

Geri Kennedy is a vice president with First Bank Association Bank Services. She is a member of the ECHO Legislative Committee and several regional resource panels. She is a past member of the ECHO board of directors.