Current Reserve Position
Reserve Balance
$341,300
Banc of California — March 31, 2026
FDIC Insurance Limit
$250,000
Per depositor, per institution
Uninsured Exposure
$91,300
Funds above FDIC limit — currently at risk
The Problem
The association's reserve fund held at Banc of California stands at $341,300 as of March 31, 2026 — above the $250,000 FDIC insurance limit. This means approximately $91,300 of HOA funds are currently uninsured and at risk in the event of a bank failure. As reserve contributions increase in FY2027, this exposure will grow further.
The Solution — CDARS via IntraFi Network
CDARS (Certificate of Deposit Account Registry Service) is offered through the IntraFi Network — a system that allows the HOA to work with a single financial institution while automatically spreading funds across multiple FDIC-member banks in amounts under $250,000. The result: full FDIC insurance coverage on the entire reserve balance through one relationship, one statement, and one point of contact.
How It Works for PSB3
- HOA deposits reserve funds with one IntraFi member institution
- Institution automatically allocates funds in sub-$250K increments across its network of member banks
- Each increment is separately FDIC-insured up to $250K
- HOA receives one consolidated statement — no need to manage multiple bank relationships
- Funds remain in CDs, typically earning competitive interest rates
Current vs. CDARS Protection
| Factor |
Current (Banc of California) |
With CDARS |
| Reserve balance (March 31, 2026) |
$341,300 |
$341,300 |
| FDIC-insured amount |
$250,000 |
$341,300 |
| Uninsured exposure |
$91,300 |
$0 |
| Bank relationships to manage |
1 |
1 (network handles the rest) |
| Statements |
1 |
1 consolidated |
| Interest earned |
Standard savings/money market |
Competitive CD rates |
| Full reserve protection |
No |
Yes |
Why This Matters Now
As reserve contributions increase, so does the uninsured exposure.
- Under Scenario A (12.35%), the reserve contribution is $230,433/year (SCT recommended rate) — uninsured exposure increases unless action is taken.
- Under Scenario B (6.03% + $33 Frontier surcharge), the same $230,433/year reserve contribution applies — both scenarios fund reserves at the SCT recommended rate.
- HOA boards have a fiduciary duty to protect association funds. Leaving reserve funds above $250K in a single institution without CDARS protection is an unnecessary and avoidable risk.
- CDARS is widely used by HOAs, municipalities, and nonprofits precisely for this purpose.
Considerations
One trade-off to understand before enrolling.
- Interest rate spread: Banc of California retains a small spread on the interest earned — meaning the HOA receives slightly less than the headline CD rate. This spread is not published but is standard across all IntraFi member banks. The net yield is still competitive and comparable to Treasuries or government money market funds.
- CD liquidity: CDARS funds are locked in CDs for their term. If the HOA needs emergency access before maturity, early withdrawal penalties may apply. This is mitigated by laddering (see below) and by keeping a portion in ICS (demand deposit) rather than CDARS.
- Brief settlement window: During fund transfers between network banks, balances can technically exceed FDIC limits for a very short period. This is a nominal and rarely material risk.
Return on Investment — Current Rate Environment
CD rates are in the 4–5% range in mid-2026. IntraFi rates reprice weekly at enrollment.
- At an estimated ~4.31% blended rate on the ~$433,000 FY2027 opening reserve balance, the HOA would earn approximately $18,650/year in interest — funds that flow directly back into the reserve account.
- This effectively reduces the net cost of reserve funding: the SCT-recommended contribution of $230,433/year (both scenarios) becomes approximately $211,783 net after CDARS interest income.
- As the reserve balance grows in subsequent years, annual interest income increases proportionally — providing a compounding benefit over time.
CD Laddering Strategy
A CD ladder staggers maturity dates across multiple CDs so that a portion of reserves becomes available at regular intervals. This balances higher yields on longer-term CDs with liquidity for near-term capital needs — especially important once the reserve study identifies upcoming expenditures. The structure below is sized to the estimated FY2027 opening reserve balance of ~$433,000 ($341.3K March 31 balance + 5 months × $18,450).
| Tranche |
Amount |
Product |
Term |
Est. Rate |
Est. Interest |
Purpose |
| Liquidity Reserve |
$50,000 |
ICS |
On demand |
~2.00% |
+$1,000 |
Emergency access — no penalty, no lock-in |
| Tranche 1 |
$100,000 |
CDARS |
3 months |
~4.25% |
+$4,250 |
Matures quarterly; reinvest or redirect to projects |
| Tranche 2 |
$100,000 |
CDARS |
6 months |
~4.50% |
+$4,500 |
Semi-annual liquidity window |
| Tranche 3 |
$100,000 |
CDARS |
12 months |
~4.75% |
+$4,750 |
Annual renewal; aligns with budget cycle |
| Tranche 4 |
$83,000 |
CDARS |
18 months |
~5.00% |
+$4,150 |
Longest term; highest rate; for stable reserve core |
| Total |
$433,000 |
|
|
~4.31% blended |
+$18,650/yr |
Fully FDIC-insured via IntraFi network |
Rates are illustrative based on mid-2026 market conditions. IntraFi rates reprice weekly at enrollment — once a CD is opened, the rate is locked for the full term. Reserve study findings should inform tranche sizing and terms before enrollment.
Rate Lock and What Happens at Maturity
- Rates are locked for the full term. Once a CDARS tranche is opened, the interest rate is fixed for the life of that CD — regardless of what IntraFi rates do week to week. This protects the HOA if rates fall during the term.
- At maturity, the HOA has a grace period (typically 7–10 days) to choose one of three options: (1) withdraw principal and interest, (2) roll over into a new CD at the current IntraFi rate for the same or a different term, or (3) redirect funds to the ICS liquid tranche.
- If no action is taken, most banks will automatically renew the CD at the then-current rate for the same term. PPM should calendar each maturity date and confirm the board's direction in advance.
- The ladder rolls continuously. As each tranche matures, it is reinvested — keeping a portion always liquid (ICS) and the remainder earning CD-level yields at the rates available at the time of reinvestment.
- ICS (Tranche 1) has no term — it earns interest daily and the rate adjusts with market conditions. No maturity date, no action required.
What if the HOA needs emergency funds from reserves — e.g., a $25,000 plumbing repair?
- Liquidity Reserve (ICS) covers this. The $50,000 liquid ICS tranche is accessible on demand with no penalty. A $25,000 draw leaves $25,000 still in the liquid tier — no CD early withdrawal required.
- California law applies. Under Davis-Stirling (Civil Code §5515), transferring funds from reserves to operating requires a board vote. The borrowed amount must be repaid to reserves within 12 months unless the board makes a finding that repayment would impose an undue hardship.
- Plumbing is a known reserve component. The reserve study includes an annual plumbing allowance of $21,000/year for reactive stack repairs — this expense is anticipated and should be pre-funded, reducing the likelihood of emergency draws.
- Best practice: Size Tranche 1 (ICS) to cover at least one full year of expected near-term reserve expenditures. Adjust after the reserve study is received in June 2026.
Recommended Action
Board Direction for May 19, 2026
- Banc of California is a confirmed IntraFi Network member and offers IntraFi Cash Service (ICS) — no bank change is required.
- Direct PPM to contact the association's Banc of California representative to enroll the reserve account in ICS/CDARS and establish full FDIC coverage on the reserve balance.
- Establish enrollment prior to the start of FY2027 (September 1, 2026) to ensure full protection as the reserve balance grows under either scenario.