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.
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.
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.
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.