Best HSA for Investing

by Michael on Nov 14, 2012 · 6 comments

Photo of Doctor with Piggy Bank

A few years ago, my employer started offering a high-deductible health plan (HDHP) that qualified for a health savings account (HSA).

After running the numbers, we found that the HDHP made sense for us, so we made the leap and also started funding the HSA.

Since that fateful day, we’ve been letting our HSA contributions accrue with the eventual goal of investing them and treating this account as an additional retirement account.

I will expand on this in the near future but, for now, please just accept the fact that we have good reasons for investing in our HSA.

Unfortunately, my employer’s preferred HSA custodian sucks. In fact, there have been two different custodians since the plan started (we switched to a new one last year) and they’ve both sucked. Especially when it comes to investment options.

And when I say they suck, I’m not kidding. High expense ratios, huge loads, and ongoing maintenance fees. Thus, I’ve been on the lookout for a good HSA for investing — one with good, cheap funds and minimal fees.

Update: Yes, you can choose your own HSA provider.

After searching far and wide, I’ve found what I believe to be the best HSA custodian for those who want to invest without high fees and complexity: HSA Bank.

Update2: Looks like there’s an even better option now.

And no, I don’t have a stake in this. I just wanted to share what I’ve learned.

About HSA Bank

HSA Bank offers a standard savings account option with a sliding interest rate scale that currently tops out at 0.9% APY for balances of $25k or more. The base account is accompanied by a $2.50/month maintenance fee but that’s waived if you maintain a balance minimum daily balance of $3k.

Alongside this plain old health savings account, you can open an investing account with TD Ameritrade. This is a brokerage account that provides you with a wide variety of investing options. Importantly, this includes a nice selection of commission-free ETFs.

Like the savings account, this account has a monthly maintenance fee — $3.00/month. But here again, you can avoid the fee. In this case, you’ll have to maintain a minimum daily balance of $5k in the savings account.

And yes, I called to verify that the latter amount includes the former. In other words, a $5k balance is enough to avoid both the $2.50/month and the $3.00/month maintenance fees.

Of course, there’s an inherent cost associated with leaving $5k in “dead” money in the savings account. In looking at their (current) rate schedule, you’ll see that a $5k balance qualifies for 0.50% APY.

Given that savings rates currently top out around 1%, we’re giving up a risk-free 0.50% — or roughly $25/year — to avoid $66/year in fees.

Investment options

Once I sorted out the fee situation, I was interested in the investment options. HSA Bank suggested that I call TD Ameritrade (and provided me with the relevant contact info), so that’s what I did.

As it turns out, TD Ameritrade’s commission-free ETF platform is pretty impressive. They have 48 iShares ETFs and 32 Vanguard ETFs, as well as a variety of offerings from State Street, Barclay’s, Deutsche Bank, PIMCO, etc.

In short, there are plenty of good options available. The primary limitation is that you have to maintain your positions for a minimum of 30 days to avoid short-term trading fees. This is no problem for me, but something to be aware of.

HSA alternatives

There are, of course, all kinds of alternatives to HSA Bank. Probably the next best option if you’re looking to invest is Health Savings Administrators. This is actually the option linked to from Vanguard.com, but I found their fees to be excessive relative to those of HSA Bank and they actually offer fewer Vanguard funds.

Update: Here’s a comparison of HSA Bank vs. HSA Administrators.

If you’re just looking for a solid savings alternative with decent rates, then you might want to check out Alliant Credit Union. Adirondack Trust is another popular choice, though their fees looked a bit high when I checked them out.

My advice: Do the math and pick the one that works out in your favor.


{ 6 comments… read them below or add one }

1 MoneySmartGuides November 14, 2012 at 12:53 pm

My HSA is like yours: horrible investment choices and more fees than I thought were possible. On the other hand, my girlfriend’s HSA is great. I forget which company it is with, but while the investment choices aren’t great, there are a few Vanguard funds in the mix. I can’t get her a diversified portfolio, but along with her other investments, I get it to work for her. The nicest thing about hers is the lack of fees. There are pretty much none.

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2 cowboy Mike November 16, 2012 at 11:54 am

My wife and I have our HSAs with HSA Administrators. They were recommeded to us via our Vanguard account. They recently switch to HSABank from Fulton Bank. We have access to a wide array of funds. We have our HSA funds invested in Vanguard’s Life Strategy Income fund.

I am curious about the HSA Administrators ‘excessive fees relative to HSA Bank’ now that they are using HSA Bank? Always looking to save a buck. What are your thoughts?
Happy trails, Mike

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3 Michael November 16, 2012 at 2:47 pm

I started to answer Cowboy Mike in the form of a comment, but it got quite long. Thus, I decided to write up a dedicated post comparing HSA Bank vs. HSA Administrators. You can find it here: link.

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4 linda November 16, 2012 at 6:47 pm

You can choose your own health saving account bank?

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5 Michael November 20, 2012 at 8:02 pm

Linda: Yes, you can choose your own HSA provider. I have written a post explaining this in more detail. Here it is: link

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6 HSAcurious March 8, 2013 at 3:05 pm

Thank you for this informative post, Michael. I’m wondering if, at the time of writing this post, Alliant Credit Union was offering investment options through SaveDaily, Inc. They currently offer a variety of no-fee/no-commission funds to HSA account holders, but for a fee of $5.95/month. Did you pass them over in favor of HSA Bank due to their fee structure or was it simply not available at the time? For me, I’m trying to get a comparison between Alliant Credit Union and HSA Bank.

Thanks for your insight.

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