Question: I need to set up bank accounts for my rental business. I also want to have a separate “reserve” account to put away money for repairs, maintenance and for future purchases. What would you suggest?
Answer: I was a banker for 25 years, so perhaps I can help. I would simply set up 2 accounts, one for your operating account and one for your escrow account. Nothing else can run through the escrow other than your security deposits and I would set that one up with an account that has no minimum balances, but does not pay any sort of interest. You don’t need to deal with the little bit of interest that would accrue…does it belong to you or the tenant…trust me, it’s not worth the hassle This type of account will likely allow very few transactions each month, which is why it would be free. The operating business checking account might have a minimum balance and a $12 – $15 monthly maintenance fee, but it will allow for considerably more volume to run through the account. I certainly wouldn’t do what is called “Treasury Management” or “Analysis” type of accounts out of the gate. These accounts charge you a small amount for each deposit, check, transaction…everything, but they give you an “earnings credit” that is based on your average daily balance that is applied to those charges. That makes sense for really high-volume accounts. I don’t suspect analysis accounts will make sense for you. Keep it simple. For your reserve account, I would do a Commercial Money Market. Although a Money Market is technically a DDA (Demand Deposit Account…a fancy word for an account that lets your write checks), it sill falls under the Truth in Savings rules. You will be restricted to 6 transactions/month and it will certainly have a minimum balance to avoid fees, but it will pay interest and you are only using it to park money anyway. If you really wanted to, you could link it to the operating account for overdraft protection, but that is up to you. It really isn’t that big of a deal. Each bank is very much like another…you’re looking for a good banker that is attentive and has enough authority to waive deposit holds and the like. I hope that this helps