Investing Reserve Fund dollars

RB writes:

We are a self-managed condo of five units. Our Declaration lets us invest our Reserve Fund in an institution with a 100% deposit guarantee (i.e. bank or credit union).

Our Reserve Fund is currently held in a premium savings account at a credit union, earning much less than inflation. I’d like to recommend that our Board invest in GICs to increase the interest earned so it’s closer to inflation. We don’t expect to need the whole amount as liquid cash on short notice so we would ‘ladder’ the GICs to have some amount (about a fifth) coming to term each year.

How do other condos invest their Reserve Fund? Stock market? Mutual funds? Art? Mortgages?

Paul replies:

Dear RB: A great question. I do not know how other condo boards invest their money that is up to each corporation. However, the Act is quite specific as to where the money can be invested.

I am not an investment expert, but I think that the limitations imposed are a means of protecting owners’ investments. Anything associated with a risk factor appears to have been left out.

The Act

Investment — reserve fund account

147(1)      The money in a reserve fund account may be invested only in accordance with the regulations.

The Regulations


30 A condominium corporation may invest the money in its general account or accounts and its reserve fund only in one or more of the following:

(a) an account with a financial institution that is a member institution under the Canada Deposit Insurance Corporation Act (Canada) or with a credit union or caisse populaire to which The Credit Unions and Caisses Populaires Act applies;

(b) bonds, debentures or indebtedness of, or guaranteed by, the government of Canada or of a province of Canada;

(c) securities the payment of which is a charge on the consolidated revenue fund of the government of Canada or of a province of Canada;

(d) investments that are fully insured by the Canada Deposit Insurance Corporation or fully guaranteed by a guarantee corporation under The Credit Unions and Caisses Populaires Act;

(e) mortgage-backed securities that are fully guaranteed by the government of Canada or a crown corporation.

As you can determine from the above, laddered GICs are probably the way to go since investing in Google or a Gaugin painting would not qualify.

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