Associations must set up bank accounts that are separate and distinct from their managing agent's funds and must separate their operating and reserve funds into separate accounts.

A "Reserve Account" refers to money the association has set aside to defray the future repair or replacement of, or additions to, those major components which the association is obligated to maintain. Civil Code §1365.5(f).

Account Restrictions.  Except for temporary borrowing, boards may not expend funds designated as reserve funds for any purpose other than the repair, restoration, replacement, or maintenance of, or litigation involving the repair, restoration, replacement, or maintenance of, major components that the association is obligated to repair, restore, replace, or maintain and for which the reserve fund was established. Civil Code §1365.5(c)(1).

Other Considerations. There are also signature requirements for transfers and prudent investment policies that boards need to follow. Boards also need to establish a policy for handling interest on the reserve accounts.