HSA Bank vs. HSA Administrators

by Michael on Nov 16, 2012 · 6 comments

Photo of Stethoscope on Hundred Dollar Bills

In response to my post about the best HSA for investing, a reader named Mike asked for details on what I termed the “excessive” fees at HSA Administrators.

My response wound up being rather lengthy, so I decided to make it a post of its own vs. slapping it up as a comment. So, here it is.

For starters, we’re not talking about vast sums here, so it may not be worth moving your money if you already have an account with HSA Adminstrators. But I’m setting up a new account so I will of course choose the cheaper option (all else being equal).

Looking at the numbers, HSA Adminstrators has a $45 administrative fee that cannot be waived. On top of that, there is a custodial fee of 0.0008 per quarter times account balance calculated on the first $20k held in each mutual fund.

Thus, if you have $20k (or more) in a single fund, you’ll pay 4 x $16 = $64 per year. If you have money in multiple funds, then you’ll have multiple $20k limits before this fee is capped.

So let’s assume that you have $20k (or more) in a single mutual fund. In that case, you’ll pay $45 + $64 = $109/year in fees at HSA Administrators. With a higher total balance spread across multiple funds, that custodial fee would creep upward.

At HSA Bank, you would pay nothing if you’re willing to park $5k in their savings account at 0.50% APY.

If you keep less than $5k but more than $3k in savings, you’ll pay $36 in fees (i.e., $3/month for the investment account).

If you’d prefer to keep even less in the savings account (less than $3k, all the way down to nothing), you’ll pay a grand total of $66/year in fees — that’s $2.50/month for the savings account and $3/month for the investment account.

Yes, I recognize that there is an opportunity cost to keeping the money in the savings account, but even if you keep your savings balance at zero (and pay the full fees) you’ll still come out ahead vs. HSA Administrators.

A couple of other differences:

  • HSA Bank’s fund selection is somewhat larger, including 35 Vanguard funds plus funds from several other families. That being said, the fund selection at HSA Administrators (22 different Vanguard funds) looks fine for most.
  • With HSA Bank, you’ll invest using ETFs instead of traditional mutual funds. HSA Adminstrators uses Vanguard mutual funds, though there are Admiral shares available for a number of them, so the expense ratios will be competitive.

Are these differences worth the trouble of moving? Maybe, maybe not. That’s up to you. But if you’re choosing between the two for a new account (like I am), then HSA Bank looks like a better bet.

P.S. If you do go with HSA Administrators, it looks like you can pay that $45 administrative fee from outside funds as long as you catch it in time. Otherwise they’ll take it from your HSA balance. Given the limits on HSA contributions, you may want to pay that fee with non-HSA dollars.


{ 6 comments… read them below or add one }

1 cowboy Mike November 16, 2012 at 4:53 pm

Thank you kindly for the GREAT information! We will have to crunch some numbers. As frugal as we a move is something to consider.
One difficulty for me is I’d rather not move away from the low expense fund of funds LifeStartegy Income fund. I really like it. :)

We have 2 individual accounts and our HSA balances are around $10,000.00 each. HSA Administrators does have a close account or transfer to another HSA custodian fee of $25.00 per account

I do not understand what point you are trying to make when you write: P.S. If you do go with HSA Administrators, it looks like you can pay that $45 administrative fee from outside funds as long as you catch it in time. Otherwise they’ll take it from the HSA funds. Given the limits on HSA contributions, you may want to pay that fee with non-HSA dollars.

Can you please help me to understand the point you are trying to make to us? We have been paying the fee with non HSA dollars.

Thank you all your work.
Happy trails, Mike

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2 Michael November 16, 2012 at 5:10 pm

Hi Mike: What I mean is that you are limited to contributing $3100 (for an individual) or $6250 (for a family) per year as of 2012. Thus, if you are: (1) maxing out your contributions, and (2) hoping to build as large a balance as possible due to the tax benefits, then you should pay any fees that you can with money that is not held within the HSA itself.

Again, assuming that you are contributing the max, paying that $45 with non-HSA funds is kind of like being able to contribute $45 more than the max. Not a huge deal, but every little bit helps.

Does that make sense? Sounds like you’ve been doing this, so that’s good.

Also, you made a good point about account closure fees. I forgot about that angle. I think that HSA Bank has a $25 fee for closing your account if you decide to go elsewhere. Sounds like HSA Administrators is similar — but at least it’s a one-time fee.

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3 cowboy Mike November 17, 2012 at 9:50 am

Hi Michael,

Thank you, I now understand the point you were trying to make.

We have tried to evaluate this. We each have an HSA account. So the fees would be double. Also, if we wanted to avoid all the fees with HSA Bank because we have 2 accounts we would have to put $10000.00 in savings account limbo at 0.50% APY which we may not be willing to do at this time.

If we left the savings accounts with a zero balance we would, between the 2 accounts save $96.00 ($218.00-$122.00) per year. So after one year we would more than make up for the $50 ($25.00×2) cancellation fees.

So it makes sense to make the change. However, I do not want to move away from the Vanguard Life Strategy Income Fund which fits our desired asset allocation for the HSA monies.

We are at this time looking at the two HSA accounts as a forms of retirement Roth IRAs. We are saving all our medical receipts for use later similar to the strategy as outlined here:

http://www.freemoneyfinance.com/2008/08/using-your-heal.html

So for now we are going to stay put. :)

Thank you for info and the conversation Michael.
Happy trails, Mike

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4 Michael November 17, 2012 at 9:56 am

Hi Mike: Yes, we’re doing the same thing, essentially treating it as an extra retirement account. Something to be aware of here is that, starting in 2013, the penalty for non-qualified withdrawals will increase from 10% to 20%. No big deal if you follow the rules, but it’s worth noting.

As for the question of which to use… If it were me, and if I were sold on using a particular fund that was only available in one but not the other, I would probably do what you are doing — i.e., stick with what you have.

In our case, I’m just looking for more tax-preferred space to fill with bonds (Total Bond Market) so our needs are served by either provider. Thus, we’ll opt for the cheaper one.

Good luck. :-)

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5 Craig July 16, 2013 at 5:32 pm

When opening a new account (limited to having a 3,250 balance for individual) and planning to fully invest wouldn’t it make sense to initially go with hsa admins $45+10.40=$55.40 total – (10.40 being the yearly .0032 expense on $3,100) fully invested vs paying $66+ to fully invest the balance with hsa bank?

In year 2 the total cost of HSA admins would end up around 66 (assuming balance around $6,500)

After two years assuming fees stay the same you could then choose to transfer the account if it made sense at the time.

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6 Donald November 18, 2013 at 2:03 am

I know this is a late reply, but I’m basically doing as you described. Now that I see there is a $25 charge to close the account maybe I should have just opened an account with HSA Bank originally, but when all’s said and done it’s just a few dollars difference. Once I have $5k in the account I’m going to reevaluate who I’m banking with and see what makes the most sense fee-wise.

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