We use ING cashable GIC`s for all of our damage deposits. We match the GIC term to the lease. Their cashable GIC`s have a lower interest rate that they pay if you don`t go the full term, which is nice if the lease needs to be broken for some reason.
We automatically roll these into a Security Deposit account as they mature so we don`t end up with them in another GIC if the tenant is not staying on, and you can revise this if they re-sign a new lease to stay within a GIC.
For our "reserve" funds, we use PC Financial accounts for each property, they have OK interest for a savings account (more than most major banks, but sometimes a little less than ING), they are tied to a no-fee chequing account that we auto transfer money to just prior to payments coming out. (ie. mrtg amount just prior to mrtg payment, property taxes just prior, etc). All rents are deposited directly to their respective property accounts. Cheques are written on the no fee accounts for any bills/other expenses and money transfered the same day to cover.
We keep a small float in this account to allow for timing issues and have an overdraft on the account (but the fees are excessive for using this, thus the float).
This allows us to:
a) keep our security deposits separate, and clean (as it isn`t really our money)
b) monitor accounts for bounced rent cheques etc. and see that the account really is rising every month (a visual positive cash flow indicator)
c) earn at least a little money on our reserve/security deposits
d) pay NO banking fees in relation to our properties
e) Use CIBC bank machines for no-charge (avoid the stupor-store craziness) (this includes deposits)
f) sleep easy at night, knowing that the funds are liquid and available to us, and that almost all transactions are automated.
(We do the tax installment plan on all our properties with auto direct debit, we setup direct debit (where available) for Condo fees, and all mortgages are direct debit from that account)
Rob