Should all the Body Corporate funds be in an interest -bearing account?

One of the functions of the BC is to open a bank account:

Quote from the STSM Act:

Section 3. (1) A body corporate must perform the functions entrusted to it by or under this Act or the rules, and such functions include—

(g) to open and operate an account with any registered bank or any other financial institution;

In terms of bank accounts the STSM Act states that all monies received must be paid into an interest-bearing bank account that is either:

  • In the name of the BC or

Into a Trust account

Quote from the STSM Act:

PMR 21(4) The body corporate must ensure that all money received by the body corporate is deposited to the credit of an interest-bearing bank account—

  • in the name of the body corporate; or
  • that is a trust account opened in terms of either the Estate Agency Affairs Act, 1976 (Act No. 112 of 1976), or the Attorneys Act, 1979 (Act No. 53 of 1979).

We work on a Trust account system where each BC has its own Trust account in our Trust account. This is done in terms of Section 32(1) of the Estate Agency Affairs Act, Act 112 of 1976.  This gives protection to the Body Corporate ito the EAAB’s fidelity fund.  All income for the BC goes into this account and all expenses are paid out of this account.

After all the expenses have been paid in a month there should be some surplus funds available for the BC to put aside. It is therefore provided in the STSMA for the BC to open an investment account(s).

Quote from the STSM Act:
PMR 21(3)

  • invest any moneys in the reserve fund referred to in sections 3(1)(b) of the Act in a secure investment with any institution referred to in the definition of “financial institution” in section 1 of the Financial Services Board Act, 1990 (Act No. 97 of 1990);

History
Before 1997 the Act stated that any funds not immediately required for disbursement may be invested in a savings or similar account with any building society or any other registered deposit receiving institution approved by the Trustees from time to time. In 1997 it was amended to state that it may be invested with any registered building society or bank.

The STSM Act also stipulates that there should be separate bank accounts for the Administrative Fund and the Reserve Fund.

Quote from the STSM Act:
PMR 26(1)    A body corporate must—

  • keep separate books of account and bank accounts for its administrative and reserve funds referred to in sections 3(1)(a) and (b) of the Act;

Our Trust account is used as the bank account for the Administrative Fund and we then open a separate investment account for the Reserve Fund.  We also operate on the system of having a second investment account in the name of the BC for day to day surplus funds that are not part of the Reserve Fund.

We have the option for our BC’s to open an investment account with Investec or Nedbank.  It is in the name of the BC and covered by the EAAB Fidelity Fund and our own PI cover.

The BC also do not earn interest on the monies sitting in the Trust account so it is important that surplus funds be transferred monthly to the investment account.