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CDIC Insurance and Secured Funds
A new board member raised issue of CDIC insurance coverage for Reserve Funds in light of recent bank failures… does anyone have insight on this? As I understand it, every $100,000 in contributions would need to be deposited with a unique financial institution (per CDIC guidelines). We are investing in High Interest Svgs and short-term GICS since we are a new development (<5 yrs) currently so would only need 3 separate deposits with qualifying institutions but when the RF reaches $1M plus, it would become very cumbersome.
Given the above, I’d say our risk tolerance is very low so anything other than GICs would likely not be approved either. Although we are a new complex, we have already identified some repairs that will impact reserve funds. Our fund study is about 3 yrs old, development was incomplete at time of study. Construction is now finished, I think a new RFS should be done now to ensure our contributions will meet our current needs, rather than wait until it is due at 5 yr point.
Interested in hearing thoughts from seasoned condo owners/board members … Thanks!
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5 Replies
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The first paragraph is correct. You’ll find institutions have different branches within, for GIC’s and other reasons… for instance, Oaken was the highest in Calgary for GIC’s at 2.1 % prior to BoC rate hikes. Within Oaken there are 2 branches allowing for $200k insurable (Oaken Home Trust and Oaken Financial? I can’t recall). Once you’ve hit around 3 or more institutions it could be difficult to maintain but GIC’s are straightforward and creating an excel or google sheet is quite simple… You’d be losing much of your gains hiring a manager who charges basis points (look for one that charges an annual rate). The best returns are at 5 years and if you sort yourselves out correctly you could have 1 or 2 special meetings a year just to plan investments and review. With 1 million and CDIC coverage you’ve got 10 purchases… over 5 years… that’s only 2 maturing a year. If a 5-year ladder isn’t the appetite, then try to plan the maturity cycle timing to be tight and pre plan your options and the meetings with institutions within that week.
Schedule 2 doesn’t allow for much other than GIC’s but it does allow for some great dividend stocks and bonds. A conversation is best held when you have multiple board members with financial backgrounds.
Could you have a Reserve Fund Update instead of a new study? That may be a little more affordable and timelier.
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Here are the two advisors I run into a lot:
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Hi All- It shouldn’t cost the corp anything in management fees to place reserve funds in CDIC GICs. If an advisor is looking to charge fees than I suggest looking elsewhere. There are also ways in which corps can work around the 100K insurance limit… typically by placing GICs in multiple different institutions. Happy to chat about my experience with this issue further if anyone is interested.
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