I recently got to do something I’ve been wanting to do for a long time: enroll in a high-deductible health insurance plan that qualifies me for a health savings account (HSA).
I know, I know. It’s not exactly a dream vacation or even a new iPhone. But what can I say? I’m a huge money nerd and this kind of thing gets me excited.
And you know why? Because health savings accounts are badass. They let you:
- Contribute money tax-free,
- Invest the money tax-free, and
- Withdraw the money tax-free for medical expenses
That’s right, they are the ONLY savings account that allows you to save and then spend your money COMPLETELY TAX-FREE.
This makes them a fantastic way to save money on medical expenses. But it also makes them quite possibly the best retirement account out there. Every other retirement account either taxes your money on the way in (Roth IRA) or on the way out (401(k) and Traditional IRA).
A health savings account lets you skip taxes all the way through.
So yeah, I was pretty excited about the chance to finally open one and start contributing!
Of course, this new opportunity brought up a big question: what’s the best place to open a health savings account?
I’ve done this research for a few clients before, but this was the first time I was forced to do it for myself. And to be honest, every time I’ve looked into this I’ve found the search to be a little confusing. There are a lot of options and a lot of different variables to consider, and it can quickly feel overwhelming.
So in this post I’m going to share the steps I took to find the best health savings account for my personal needs. Here’s what we’re going to cover:
- How I plan on using the money in my health savings account
- The factors I considered when looking at different accounts
- The search tools I used to find and compare HSA providers
- Which providers I ended up liking and why
I do want to be clear up front that I’m actually not an expert on this specific topic and that it’s entirely possible that there are better providers than the ones I chose, especially if you have different needs or preferences than I do.
But my hope is that by showing you my process, it will be easier for you to find the right health savings account for your own needs when the time comes.
Quick note: This is an updated version of a post I originally wrote in 2015. It’s been updated primarily to reflect the fact that I would choose different health savings accounts today than I did at that time, based on changes in fees, interest rates, investment options, and a number of other variables. Those updated choices, and the reasons for them, are detailed below in an effort to help you make the best choice possible given the current options available.
My goals: how I plan on using the money in my health savings account
How you plan on using the money in your health savings account has a big impact on how you should invest it, and therefore who the best provider might be.
If you plan on using the money for current medical bills, keeping it in some kind of safe, easily accessible savings account probably makes the most sense. If you plan on investing it for the long-term, you’re probably going to prefer a provider with solid investment options.
Personally, my family typically has fairly significant medical expenses each year. So while I would love to use our health savings account as an investment account, the truth is that for 2018 we’ll be contributing money with the expectation of spending it pretty quickly. For us, the tax breaks will essentially serve as a way to get discounted healthcare.
But in order to make this post a little more helpful, I’m going to pretend that our needs are different.
I’m going to pretend that our medical needs are fairly minimal. Aside from the occasional ear infection and other little trips to the doctor, mostly for our kids, we don’t typically have much in the way of medical expenses.
Still, we like the idea of having some dedicated money set aside in case we run into a larger than expected medical bill. And having it in a tax-advantaged place like a health savings account is appealing.
So here’s the simple plan I would implement in that situation:
- Keep $2,000 of our HSA in a safe investment. Something like a savings account where we can earn some interest and know that the money will be there when we need it.
- All HSA contributions on top of that $2,000 will be invested in line with my preferred investment philosophy.
The factors I considered when comparing HSA providers
Having two different goals introduced a little complexity to my search for the best health savings account. After all, the best provider for a safe, interest-earning account might not be the same as the best provider for long-term investing.
Still, in either case the first step was to collect information and figure out what my options were. Here are the main variables I considered.
- Fees – Fees are always a big deal with any kind of investment account or savings account, and HSAs are no different. I looked at setup fees, annual fees, monthly fees, trading fees, overdraft fees, debit card replacement fees, and anything else they may be able to charge me. The lower the fees the better.
- Interest rate – This was a bigger factor for the $2,000 I wanted to set aside specifically for medical expenses. While the difference between 0.1% and 1.5% on $2,000 certainly isn’t life-changing (about $28 per year), all else being equal I would rather earn more than less. It’s worth noting though that in most cases it was better to avoid fees than to get a better interest rate.
- Eligibility – A lot of the health savings accounts with competitive interest rates are run by local credit unions that have eligibility requirements, such as living in a particular state. Sometimes these requirements could be waived with a small contribution to a local charity and sometimes not. In my case, I was not eligible for many of the HSAs offering the highest interest rates.
- Ease of use – Could I utilize online banking? Was the website easy to navigate? Would they provide a debit card for easy payment at the point of care? Could I apply online or would I need to print out and mail in a bunch of paper forms?
- Investment options – For the long-term investment portion of my money, I wanted to see high quality, low-cost investment options that aligned with my personal investment philosophy.
- Minimum balance – Was there a minimum balance required to open the account? Did I need to maintain a minimum balance to either earn a certain interest rate or avoid certain fees?
The search tools I used to find and compare HSA providers
I ended up using three main tools to find and compare health savings account providers.
I started with the site HSA Rates, which was particularly helpful for finding health savings accounts with competitive interest rates. Here’s how I used it:
- I updated the Amount field to $2,000, since this was the amount I planned to contribute.
- I left the State field as All because I’m comfortable doing all my banking online, even if there isn’t a branch near me.
- Starting at the top of the search results, I clicked the + sign for each option to see more about fees, online access, and eligibility requirements.
- For any providers that looked interesting, I clicked through to their site to learn more and see if there might be any fine print.
That was the most helpful site for finding an HSA provider for the $2,000 I wanted to keep safe because I could quickly look through the accounts paying the best interest rates and make a list of the ones I was eligible for.
Another site that could be helpful, thought I didn’t end up using it much, is HSA Search. I didn’t find it to be as helpful as an initial search tool because you have to click through to each individual page to see details of each account, as opposed to HSA Rates where you can see it all right on the search page. But they do have a compare tool that could be an easy way to compare a few different providers side-by-side. I made my own spreadsheet for this purpose, but you might find the website easier to use.
The other tool I used was simply Google. This was especially useful for finding good health savings accounts for the investment side of things, where the two sites above kind of fell short. I simply Googled “best hsa for investing” and got a number of helpful results. Here are the resources I ended up relying on the most:
- HSA custodians and options
- Best HSA Provider for Investing HSA Money
- The Best Health Savings Accounts for Spending or Investing
Which HSA providers I ended up choosing and why
After a lot of research, including phone calls to several HSA providers to get details on fees and interest rates, I found found a few health savings accounts that stood out compared to the rest.
Here are the accounts I chose and why I chose them.
For savings/spending: Lively
Here’s what I like about them:
- No fees at all for their basic HSA account. No monthly fees. No setup fee. No overdraft fees. No account closing fee. Nothing.
- Debit card to pay for medical expenses.
- Online enrollment and online banking that felt modern and easy to navigate.
- No minimum account balance.
Now, there are two downsides to Lively that gave me pause.
The first is that it’s a pretty new start-up. While that seems to be a factor in the superior online experience compared to other providers, which is a definite plus, it also means I don’t know how this provider might change going forward. There are no fees now, but what if they’re not profitable? Will they raise fees in the future? It’s something I have to watch out for.
One big thing that comforted me here is that their health savings account is FDIC insured, meaning that I don’t have to worry about losing my money if the company fails. Without that, I probably wouldn’t have been comfortable giving them a shot.
The second downside is the interest rate. They have a tiered system that currently starts at 0.05% for balances under $2,500 and goes up to 0.55% for balances of $15,000 or more.
There are a number of HSA providers offering better interest rates. One catch is that many of them are local credit unions that I wasn’t eligible to bank with. You might be able to though, depending on where you live, and again HSA Rates is the best site I know for finding one.
But there were a few providers I was eligible for who DID offer a better interest rate. For example:
- Connexus Credit Union offered 1% interest with a $5 fee to gain eligibility, but it also came with a $2 monthly maintenance fee.
- Lake Michigan Credit Union offered 0.50% interest
- First Technology Federal Credit Union offered 1% interest with an $8 fee to gain eligibility.
I also really liked HSA Authority, which, like Lively, came with minimal fees. To be honest, I was planning on going with them until I found Lively.
But I ended up choosing Lively over those other options for two main reasons:
- Assuming that I consistently keep my balance at around $2,000, the difference in fees and interest rates would only lose me about $19 per year. It’s not nothing, but it’s not life-changing either.
- More importantly, I don’t have to worry about ANY fees, even if I accidentally overdraft. With the other providers, even one accidental overdraft would have wiped out any potential benefit from the higher interest rate.
- I liked the smooth online interface. Some of the other providers were a lot clunkier and seemed like they might be difficult to use.
- As it turns out, Lively was also one of the most desirable investment options. By keeping all my HSA money with a single provider instead of using one for savings/spending and one for investing, I could make my life that much simpler.
For investments: Lively
Yep! The exact same provider.
Now, I’ll be honest, I could have gone in a few different directions here. And depending on what you want out of your HSA investments you might be better off using a different provider.
But here’s what I liked about Lively:
- The $2.50 monthly maintenance fee was lower than most and there are no other fees to worry about. I especially like that there’s no custodial fee, unlike some of the other options I’ll mention below, which means that my costs won’t rise as my account balance rises.
- Access to a strong list of commission-free ETFs through TD Ameritrade. I didn’t like that I couldn’t get free access to Vanguard funds, which is always my preferred route, but there are enough high-quality, low-cost funds in that list that I can put together a good investment portfolio.
- The option of investing 100% of my HSA. Other providers require you to keep some amount of money in a lower-yield savings account, and I like that I could choose to invest my entire HSA if my circumstances change down the line and I no longer need to keep some of my money available to spend.
- Easy online access.
- The ability to have the savings and investment components of my health savings account with the same company.
Here are some of the other good options I found, along with why I didn’t end up choosing them.
- HSA Authority – To be honest, I flipped back and forth a few times as to whether I liked Lively or HSA Authority better. The annual fee for HSA Authority is only $6 more and it offers Vanguard funds, which is a huge plus for me. In the end I went with Lively only because I liked the savings account a little better, I wanted to keep my money in one place, I could save a small amount in fees, and I wanted to give the startup a shot.
- Saturna Capital – This is another good option that could actually cost less if you used it right. They have no annual or monthly fee but they charge you $14.95 per trade in your investment account (plus a $10 surcharge for Vanguard and Fidelity funds), and another $4 per year to reinvest your dividends. So if you only make one contribution per year and put it all into a single fund, you could save money with Saturna. I preferred the simplified fee structures of the other providers, but you might see things differently.
- SelectAccount – There’s an $18 annual fee for the privilege of investing, along with a requirement to keep $1,000 in an HSA savings account that would earn between 0.10% and 0.20% interest and cost an additional $12 per year in monthly fees. The initial investment options include a pre-selected group of Vanguard funds, and once you have a $10,000 balance you can access Schwab’s brokerage platform, opening up a much wider range of investments.
And here are some of the other providers I researched, but didn’t end up liking:
- HSA Bank – There’s a $5.50 monthly fee unless you keep at least $5,000 in their low-interest savings account, in which case that fee would be waived. And they offer two different investment platforms. One is through TD Ameritrade, which is the same as Lively. The other is through Devenir and offers only a pre-selected set of high-cost mutual funds. All-in-all it’s a fine option as long as you invest with TD Ameritrade, but the other providers are, in my opinion, better.
- Health Equity – With a $36 annual fee and a 0.40% custodial fee, the costs were too high to seriously consider them. The custodial fee in particular is a deal breaker since it means that my costs would increase as my account balance increases.
- Health Savings Administrators – Like Health Equity, the costs were too high. There is a $45 annual fee and a 0.25% custodial fee.
- Optum Bank – I had to call for information on this option, since details are hard to find online. I was told that there is a $2.75 monthly fee unless you hold $3,000 in their savings account, which starts at 0.05% interest. And there is a 0.36% custodial fee but it’s capped at $10 per month, which makes it more attractive than the two previous providers. In the end though, the fees are still too high.
Excited to get started!
So that’s how I went about my personal search for a health savings account and how I found the best HSA providers for my personal needs.
I honestly don’t for sure that they’re the absolute best options out there, but I know they’ll do a good job of meeting my needs. And no matter what I’m excited to finally have access to this awesome account!
Have you ever done you own search for a health savings account? Which provider did you end up using and why?