We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What is a Reserve Fund?

Mary McMahon
By
Updated May 16, 2024
Our promise to you
SmartCapitalMind is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At SmartCapitalMind, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject-matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

A reserve fund is a fund which is established for the purpose of covering expenses which will come up in the future. This includes scheduled expenses, routine expenses which can be relied upon to occur, and unexpected expenses. The goal of this type of fund is to make sure that monies are set aside to cover expenses so that these expenses do not require spending general funds. For certain types of enterprises and business, the creation of a reserve fund may be required by law.

A classic example of a reserve fund is the fund associated with a building cooperative or condo association. In such organizations, tenants pay dues which are intended to cover maintenance, repairs, and other expenses related to operating the building. Some of the dues are gathered into a fund which is used to handle known expenses as well as unexpected ones. For example, the cooperative board might be aware that there are biannual insurance payments which must be covered, and it can expect to replace flooring periodically with wear. By saving money to prepare, the board can ensure that these expenses will be easily dealt with when they arise.

Another example of a reserve fund is a pension fund. In some industries, employees have an opportunity to sign up with a pension plan which provides payouts in their retirement. Payments from employees who are working are put into the reserve fun to ensure that funds will be available when they retire and expect payouts. It is common to invest these monies on behalf of members of the fund.

Reserve funds are also established by governments, financial institutions, and private households. The size of such a fund can vary, but the general goal is to deposit funds into the reserve on a regular basis so that they will accrue interest and allow the fund to grow with time. When expenses arise, they can be paid out of the reserve money, rather than forcing people to struggle to meet expenses with general funds.

Typically a reserve fund is kept in a highly liquid format because one never knows when expenses will arise. A household, for example, could maintain a savings account to cover unexpected expenses. Something like a certificate of deposit would not be a good choice for setting aside money because penalties must be paid if it is cashed in early. People are often encouraged to put some money in longer term investments to think far into the future, while keeping other savings funds in a liquid reserve fund for immediate expenses or expenses which are likely to arise in the next few years.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Mary McMahon
By Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a SmartCapitalMind researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

Discussion Comments
By anon74963 — On Apr 05, 2010

Reserved funds like above mentioned are some of the common types that are in practice. Another special type of reserved fund is in cooperatives. The reserve fund in the cooperative is a characteristics one.

The reserve fund of a cooperative must have common and equal for all members even they would buy an unequal amount of share capital. This makes the cooperative different than other organizations.

Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a...

Learn more
SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.