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HSA is short for a “health savings account.” HSAs are tax-advantaged accounts used to save and invest for medical costs. If you have a required high-deductible health plan (HDHP), you can save and invest with any HSA account provider you choose. Let’s take a look at how HSAs work and which one is best for you.
At a Glance: Comparing the Best HSA Accounts
|Account provider||Minimum balance to invest||investments||Investment fee|
|HSA Bank||$1,000||TD Ameritrade or Becoming||$0|
|HSA authority||$0||Preselected background list||$36 per year|
|Optum Bank||$2,000||Preselected background list||$1 per month|
The best HSA accounts to open right now
If you’re ready to open and invest through an HSA, these are some of the top providers to consider.
Lively offers a win-win with low fees and great investment options. The account is free for individual users. There are no recurring fees or minimums. Funds are held in an FDIC-insured bank account that carries a modest interest rate. You can also open a linked HSA investment account through a partnership with TD Ameritrade. This allows you to invest in virtually all US stocks and ETFs without fees.
The main downside to Lively is that you currently only earn 0.01% APY on all cash balances. This is much worse than a high-yield savings account.
However, the ability to invest your balance using a TD Ameritrade linked account is such a valuable part of the overall Lively account experience. TD Ameritrade Investment accounts let you buy and sell stocks and ETFs for free, among other great features.
Fidelity is already one of the top investment companies for retirement accounts, so HSAs are also a natural fit. And with a Fidelity HSA, there are no recurring fees or minimums. In addition, the account also has many bells and whistles available with regular Fidelity brokerage accounts, which is worth considering.
For example, Fidelity offers commission-free stock and ETF trades and its own family of mutual funds with no trading fees or load fees. It’s actually an excellent mutual fund broker for this reason and is competitive with TD Ameritrade.
Other notable benefits include:
- No monthly or recurring fees for personal HSAs (employer-sponsored accounts can cost up to $48 per year)
- No fees for trading stocks and ETFs
- No minimum balance
Like Lively, Fidelity pays just 0.01% APY on cash balances right now. That’s not too attractive, but Fidelity also has its new Fidelity Go HSA. This is a managed HSA account that is similar to a robo-advisor, and Fidelity manages your money for you and invests in various mutual funds that match your goals and risk tolerance.
HSA Bank is another free health savings account provider. It used to charge a monthly account fee, but has since dropped to $0. However, you pay $1.50 for paper statements and $25 if you ever want to close your account. There is also a $1,000 minimum balance requirement unlike Lively and Fidelity.
What’s great about HSA Bank is that you can invest through TD Ameritrade or work with Devenir’s Guided Portfolio Self-Directed Investing program to invest in a variety of indexes and managed funds to match your goals. The funds are also quite diverse and include bonds, real estate, international holdings and growth-focused holdings. Devenir charges 0.30% in annual management fees, which is similar to major robo-advisors like Betterment and Wealthfront, but that’s for your HSA.
HSA Bank also currently pays 0.05% APY on balances over $5,000 and 0.15% on balances over $25,000. Again, this doesn’t beat most mobile banks, but it’s higher than many leading HSA providers that only pay 0.01% currently.
HSA Authority comes from Old National Bank. The HSA Authority has no minimum balance or recurring bank fees. The account costs $36 per year for investments and an additional $2 per month if you want paper statements. You need $1,000 to start investing. HSA Authority as with HSA Bank.
The $36 annual fee is a drawback, as many HSA providers have no fees. But you can invest in a variety of assets, including a list of pre-selected mutual funds from Vanguard, American Funds, PIMCO and others.
HSA Authority’s main selling point is that it provides excellent customer service to employers and can create educational material to help employees understand how to best use their HSAs. But if you want to avoid fees altogether, other HSAs on this list are better options.
Optum Bank is part of the same company as insurer UnitedHealthcare. If you already have insurance through UnitedHealthcare, which is very common at many large employers, your default HSA option to consider is Optum Bank. While it’s highly integrated and relatively easy to use, it comes with a $2.50 monthly fee, which may be covered by your employer.
You need at least $2,000 to invest, and that costs an extra $3 a month. While there are some excellent investment options, the list of available funds is limited. However, you can invest through Betterment, which is good news if you prefer to work with a robo-advisor.
Finally, Optum has a handy store where you can shop for HSA-eligible categories like prescription refills and various health products. Orders are shipped right to your door and the online store makes it easy to spend your HSA dollars. Plus, you can get 5% off OTC products for additional savings.
What is an HSA account?
A health savings account, or HSA, is a type of account used to save for future medical expenses. Contributions to HSA accounts are pre-tax. But you pay no tax on withdrawals for qualified medical expenses. This makes an HSA possibly the most tax-friendly account.
You can keep your HSA in cash or invest a portion in stocks, exchange-traded funds (ETFs), mutual funds, bonds and other investments.
Any investment gains in an HSA are also tax-free as long as you use the funds as intended. This is due to tax-free withdrawals.
What to look for in an HSA account?
- Account Fees: Some HSA accounts charge a small fee, usually a few dollars a month. Others have no recurring fees. Some are charged when you use the investment features. Please check this crucial detail before registering.
- Interest on savings: Bank account interest isn’t always great, but you should get something for the cash in your account. Higher rates are better.
- Investment options: Some HSAs are essentially a bank account. But others have a connected brokerage account to invest in anything from a limited set of funds to the entire market of stocks, bonds, mutual funds and ETFs.
- Ease of use: Getting reimbursed for medical expenses shouldn’t feel like pulling teeth. Some HSAs are integrated with a specific insurance provider or employer system. But others work anywhere, regardless of specific providers.
Disadvantages of an HSA
With an HSA, the tax savings and The potential for long-term investment growth is enormous. The main downside to the HSA is dealing with the administrative hassle of keeping track of medical and dental expenses and keeping bills and receipts.
I tackle this task by sticking all the invoices and receipts in a file box for the year. Then, every January, I spend an hour or two with my trusty spreadsheet to summarize the medical expenses paid for the previous year. Then the receipts and a printout of the spreadsheet go into the “HSA Expenses” folder in my file.
So far, two hours of recordkeeping per year has been a reasonable cost to participate in the HSA, given the enormous benefits.
Using an HSA as an investment account
The primary use of the HSA is to cover your out-of-pocket medical expenses from year to year. A lesser-known use of the HSA is as a tax-advantaged long-term investment vehicle. Most HSAs include a cash account as the default savings option where you can earn around 1% interest annually. Many custodians allow the account owner to move their HSA balance into a variety of investment options similar to those available in a typical IRA.
The trick to using an HSA as “another investment account” comes from the refund rules. Qualified medical expenses can be reimbursed from the HSA a none time, even years or decades after the medical expense.
This feature allows the HSA account owner to increase the HSA balance year after year completely tax-free. In retirement (or in a financial emergency), the HSA owner can withdraw from the HSA without paying taxes or penalties on any amount up to the total lifetime medical bills paid since it was opened the HSA.
I have personally used my HSA as an additional investment account to help fund my early retirement. By maxing out family contributions for seven years and earning modest investment returns, we’ve managed to accumulate $55,000 in our HSA.
I have a bunch of paid medical and dental bills on file totaling $8,000. This means I can withdraw $8,000 tax-free and penalty-free whenever I want.
I can also pay unexpectedly large medical bills out of the HSA without worrying about the tax impacts of an IRA or 401k (where most of my money is held). My expectation is that the HSA account balance will continue to grow enough to fund our co-pays and out-of-pocket deductibles for many years or decades.
In selecting our top HSA providers, we considered factors such as fees, ease of use, integrations with other brokers and robo-advisors, and minimum balance requirements.
The companies included in our list did not influence their inclusion or position in any way. Rather, these rankings reflect the research and opinions of our authors and editors. You should always do your own research and don’t be afraid to talk to a financial professional to see if an HSA makes sense for your current situation.
If you qualify for an HSA, it can be a powerful, tax-advantaged account that you use to pay for medical expenses. And unlike Flexible Spending Accounts (FSAs), the money is topped up every year, so there’s no ‘use it or lose it’ risk. However, you should make sure that a high-deductible health plan (HDHP) is worth it for you and your family before considering an HSA.
That said, there are many top HSA providers on the market, and competition has helped drive down fees. If you’re looking to save money on taxes and think an HSA is what you need, we hope one of the providers on our list is right for you.