Health savings accounts, commonly known as HSAs, can be a great way to set aside pre-tax money to pay for health care costs. You can then use the funds in your HSA to pay for medical bills in the present or save for medical bills in the future. With more banks, credit unions and other financial institutions offering HSAs, consumers are benefiting, as rival providers now offer a wide array of features and benefits. Most HSAs allow you to invest your funds instead of keeping them as a cash balance. This can be a great way to grow your funds if you don’t have many short-term medical expenses. HSAs are a smart option for anyone who expects to spend money on medical bills since the funds are added pre-tax, especially if your employer provides a strong account. When it comes to finding the best HSA, you’ll want to consider factors such as fees, minimums, the ability to access your funds and more. We compared several accounts to find the best HSA options on the market in March 2024. Methodology Our team of experts analyzed hundreds of data points and then used data-driven methodology and thorough fact-checking to come up with the best HSA accounts. We heavily emphasized fees because minimizing the amount you have to pay out in maintenance fees is among the top priorities for the best HSA accounts. You can read more about our methodology below. Fidelity HSA Best for all-around features Why we picked it Fidelity’s HSA stands out when it comes to low fees, investment options, annual percentage yield (APY) on cash balances and no minimum balances. It also has an extensive ATM network and 226 branches nationwide. For those looking for more flexibility in their options, Fidelity’s HSA offers access to a number of interesting investment options, including a robo-advised account and a completely self-directed option. Users can access their funds via a Fidelity HSA debit card. Pros No account fees or minimums High APY Access to popular investment options Cons Robo-advisor option has 0.35% fee for balances of $25,000 and above Low Trustpilot ratings Who should use it The Fidelity HSA is a slam-dunk for customers of the firm who are already familiar with how it operates. It can also be a good choice for those who want to self-direct their account without paying the price, or for those who simply want to let their HSA funds sit and earn interest. Lively HSA Why we picked it Lively was founded in 2016 with the idea of putting consumers first. The company’s success in this arena makes Lively one of the most customer-friendly options, with an easy-to-use website full of useful information and higher-than-average Trustpilot ratings in our analysis. Lively also makes access to your HSA account more user-friendly thanks to a dedicated Lively HSA debit card. The Lively HSA pays between 0.01% and 0.10% on cash balances, which is lower than some competitors we compared. However, some Lively owners may want to consider using the firm’s HSA investment account, which is managed by Schwab. With an account balance of $3,000, investors can enjoy fee-free access to all of Schwab’s investment options and research. A $24 annual fee is required, however, for investment balances below $3,000. A guided portfolio option managed by Denevir is also available, however, it comes with a 0.50% annual fee. Pros User-friendly website and high Trustpilot ratings No fees for self-directed accounts Partnership with Schwab for investment options Cons Low interest paid (up to 0.10%) on cash balances $3,000 minimum balance for fee-free Schwab investments Relatively high cost for guided portfolio option Who should use it While some HSA providers make it difficult to find information about fees, Lively goes out of its way to make sure every detail about the account is clear. This approach, plus the lack of fees or complex rules, makes Lively a great option for beginners or anyone looking for a simple approach to an HSA. Digital Federal Credit Union HSA Why we picked it The Digital Federal Credit Union HSA has no account minimums and no monthly maintenance fees, and it does pay a small APY on account balances. Rates remain constant at 0.10%, regardless of your balance. So if you’re looking to get more in return for a larger balance, you may want to look elsewhere. There is also no investment option available. Despite its name, the Digital Federal Credit Union has physical branches in Massachusetts and New Hampshire, and it is also part of a nationwide shared ATM network. It is the largest credit union headquartered in New England as measured by assets, and it serves more than one million customers across all 50 states. However, as it is a credit union, you’ll need to be eligible for a membership to access the HSA. If you don’t live or work in one of the areas to make you eligible, you can join one of a list of organizations for as little as $10. Pros Unlimited check writing No account fees or minimums HSA debit card to use at thousands of locations Cons Low 0.10% cash balance APY No investment option for HSA funds Membership in credit union required Who should use it The Digital Federal Credit Union HSA is a good fit for those who don’t mind the extra step of joining a credit union and don’t plan to invest their HSA funds, since the account doesn’t offer that option. First American Bank HSA Best for monthly maintenance fee Why we picked it First American Bank’s HSA provides access to a menu of mutual funds, including target-date retirement funds. Once you’ve saved at least $1,000 in your HSA, you’ll have access to these investment options. The downside is that there is no fee-free investment option, one of only two accounts on our list that doesn’t offer such an option. The HSA offers interest on cash savings as well, although they aren’t listed on the website. On a functional basis, the First American Bank HSA offers a debit card and 24/7 online customer portal, along with no monthly maintenance fee. First American has solid Trustpilot ratings, the second-best on our list. The feature-rich mobile app allows you to record and track your expenses, submit claims, view your investment details and scan a product barcode to determine if a purchase is a qualified medical expense. Pros $0 account minimums and monthly maintenance fees Solid Trustpilot ratings Wide number of investment options Cons Annual fee on invested balances Minimum balance of $1,000 required for investment options Website isn’t particularly clear or user-friendly Who should use it The First American Bank HSA is best for those who don’t mind paying a fee to invest since it has no fee-free option. With stolid Trustpilot ratings, no monthly maintenance fee and favorable account minimums, it’s also a good option for those looking for a no-frills HSA. HealthEquity HSA Best for automated investing options Why we picked it With HealthEquity, you can invest with self-directed, partially automated or fully automated options. The fully automated option is called AutoPilot, which will automatically make moves to optimize your portfolio based on the questions you answer. The partially automated option is called GPS, which will suggest investments for you and then you can make the moves. The monthly investment advisory fee is 0.05% for both automated options ($15 monthly cap). Yields on HealthEquity cash balances are low, ranging from 0.01% APY to 0.33% APY, with the highest rate for accounts over $10,000. HealthEquity makes it easy to use the balances you have set aside for health care expenses, and at the end of the day, that’s the primary function of an HSA. You can access your funds not just via a debit card but also via online bill pay. There aren’t any monthly fees, but there are small fees for paper statements ($1 per monthly statement) and reimbursement checks ($2), so this is best for users who are comfortable with online transactions. Pros 24/7 member services Multiple ways to access funds Solid mobile app Cons Low rates on savings balances Fees for investment accounts Low Trustpilot ratings Who should use it A HealthEquity HSA is a good option if you’re more of a medical spender than a saver. With multiple ways to access your funds — and higher costs for keeping your money there — it’s best used as a true health savings account. Our picks at a glance Why get a health savings account? A health savings account is a good option if you’re looking to set money aside on a pre-tax basis to use on eligible healthcare costs as they come up. More specifically, you may want to consider an HSA for the following reasons: Tax benefits: When used properly, HSAs can be triple tax-free, with contributions, earnings and withdrawals all avoiding taxation. This means you won’t be taxed when you put money into the account, spend it on approved medical costs or allow it to grow over time. Additional savings: If you’ve already maxed out your other retirement plans, such as your IRA, an HSA offers you an additional place to enjoy tax-advantaged savings. Dedicated health savings: An HSA is intended to help those with high-deductible health care plans cope with high medical costs. Keeping such savings separate from your retirement funds or general savings can be a solid long-term strategy. What is a health savings account (HSA)? A health savings account allows you to set aside money for qualifying health expenses in a tax-advantaged account. Some HSA providers allow you to invest the money that you won’t immediately need for health-related costs. Investing your money is riskier since the investments can lose value, but it’s also likely to earn more than a savings account over the long term. For example, the highest APY on our list is 2.72%, while the average yearly return on investments in the S&P 500 since 1928 is 9.90%. So if you’re able to keep funds invested for the long term, you’ll probably earn more than having them earn interest. What are the eligibility criteria? To qualify for an HSA, you must be covered by a high-deductible health plan. For 2024, this means your health plan must have a deductible of at least $1,600 for an individual or $3,200 for a family. For 2024, you can contribute up to $4,150 into an HSA for yourself or $8,300 for a family. Benefits of an HSA The benefits of an HSA are primarily tax-related. You can take a tax deduction for amounts you contribute to an HSA, much like an IRA. Your money also grows tax-deferred while in the account. But the real benefit is in the withdrawals, which are tax-free when used for qualifying health care expenses. This makes HSA accounts potentially triple-tax-free. Choosing the right HSA for you Choosing the right HSA is much like choosing any other type of tax-advantaged investment account. You’ll want to find one that best matches your objectives. Some providers, for example, are more “hands-on” in terms of customer service and financial information, while others leave you to more or less manage your account yourself. Some HSAs have excellent investment options, while others may have only a liquid or savings account option but charge lower fees. Look at the details of various providers to determine the best match for your financial situation. How to open an HSA The best way for most people to open an HSA is actually through an employer because employers often get discounts for their plans. However, If you’re opening an HSA on your own, it will feel similar to opening any other type of investment account. You should expect to provide personal and financial information, such as your name and address, date of birth, Social Security number and banking information. You’ll also have to verify with the HSA provider that you are covered by a high-deductible health plan to be eligible. Maximizing your HSA The best way to maximize an HSA is to leverage all of its features. If possible, you’ll want to contribute the maximum amount to your HSA every year, both to boost your account value and to increase your tax deduction. Most account holders will also want to leverage the growth in their account by investing their money rather than leaving it in cash or a savings option. If you can only take withdrawals for health-related expenses, you’ll maximize the triple cash-free aspect of an HSA, as your distributions will also be tax-free. Methodology CNN Underscored Money analyzed HSAs from 13 financial institutions to come up with the rankings for the best health savings accounts. This included accounts from a mix of traditional banks, online banks and credit unions that are available nationally. We ranked each account on 18 data points across six categories. Here are the categories we analyzed and how we weighted each: Fees (30%) When it comes to maximizing return on HSAs, you’ll want to look at reducing any applicable fees. Accounts with fewer fees — both annual and monthly — scored better in our rankings. Access (25%) When it comes to taking advantage of your HSA, you’ll need to access your funds. Accounts that offer varying ways to access funds, from debit cards to checks, branch locations and more, scored better in our rankings. APY (15%) Earning more on your investment is an important part of an HSA. Accounts with higher APYs scored better in our research. Minimums (10%) Some accounts require a minimum deposit to open an account or an ongoing minimum balance. We scored accounts that don’t require a minimum better. Customer experience (10%) It’s important that you can easily reach the bank, credit union or other financial institution where your HSA is being held. We evaluated a product’s customer service availability and Trustpilot ratings. Investment (10%) HSAs can be maximized by giving you a choice. We evaluated whether an account offers multiple investment options and scored those that don’t charge a fee better. Frequently asked questions (FAQs) What are the key features to look for in a health savings account? You’ll want to look for the lowest-cost HSA that also serves your needs, whether through investment options, customer service or flexibility. For example, if you are an experienced investor, want to be very involved with your HSA and plan to have frequent medical bills, an account with a self-directed investment option along with checks and a debit card might be best. On the other hand, if you plan to be as hands-off as possible, you might want an account with low fees, a high APY and a robo-advisor. How does a health savings account differ from a Flex Spending Account (FSA)? A Flex Spending Account is sponsored by an employer and allows tax-deductible contributions and tax-free withdrawals for health expenses. However, any money that you don’t spend in the account is typically lost every year. An HSA is an individually driven account that generally offers more flexibility and investment options. There is no “use it or lose it” rule with an HSA, as the balance can be rolled over every year and is never forfeited. How can health savings accounts contribute to long-term financial planning? Savvy investors can use an HSA as an alternate form of individual retirement account. Both IRAs and HSAs offer tax-deductible contributions and tax-deferred growth. While withdrawals from an HSA for health-related expenses are also tax-free, non-medical distributions incur both ordinary income tax and a 20% penalty. However, importantly, that penalty vanishes at age 65. Thus, if you can wait to take money out of your HSA until age 65, the account will function much like an IRA, but with the added benefit that any withdrawals you can assign to health-related costs will remain tax-free. Can health savings accounts be used for non-medical expenses? Yes, you can take money out of your HSA for non-medical expenses. However, distributions will be taxable. Before age 65, non-medical withdrawals will also trigger a 20% penalty tax. How does investing through a health savings account work? Investing through a health savings account will likely feel the same as if you had your own IRA or investment account. Some firms, like Fidelity, manage the investment accounts in-house, while others, like Lively, contract with outside firms. Depending on the provider, you can either run your account, select from various provided investment options or stick with a robo-advisory account. Source link Post Views: 1 Post navigation Higher share prices lift Japan household assets to record in 2023