Best HSA Provider for Investing HSA Money

31 Comments on Best HSA Provider for Investing HSA Money

1. Money Beagle on November 9, 2011
   
    

   I’ll have to check that out. I pretty much refuse to pay an annual or monthly fee for an HSA account (it’s akin to paying a monthly fee for my checking account), so I was planning on using my credit union. I think they offered a no-charge option but I’m not sure what the interest rate they paid (if any) was. I don’t think our balance will be that high since we’re planning on just starting off next year, so it might not even be worth it to use Alliant just yet. But, I will make sure to run the numbers, because that’s pretty sweet!
2. nickel on November 9, 2011
   
    

   Be aware that if you have the option for payroll deduction directly into your employers custodian of choice, you get the tax deduction plus you avoid FICA taxes. If you instead opt to make the contributions to another custodian yourself, you still get the tax deduction, but you don’t get out of the FICA taxes. Something to keep in mind…
3. KD on November 9, 2011
   
    

   What is opportunity cost of having higher annual deductible and out-of-pocket maximum at hand if needed?

   More importantly, are the coverages same between two plans esp. for high dollar prescriptions, treatments, co-insurance etc? I tried to compare that on healthcare.gov and PPO won in instances I checked but the premiums were higher.

   I am also queasy about conflating investments and HSA money by saying money is fungible. I don’t think it is that simple. HSA money covers healthcare cost risk. Investments cover different and less critical risk in my opinion.
4. TFB on November 9, 2011
   
    

   @nickel – Thank you for your comments on saving FICA taxes if you use payroll deduction. If you earn more than the Social Security wage base ($110k in 2012), the FICA savings is 1.45% of your HSA contribution. If you earn less, the FICA savings is 7.65% of your HSA contribution.

   @KD – The risk on higher annual deductible and higher out-of-pocket maximum comes from the HDHP, not HSA itself, although you can’t have a HSA if you don’t choose HDHP. The HDHP only makes sense if you are healthy. Of course being healthy doesn’t eliminate the risk. You don’t take the HDHP for the sake of having a HSA. You take the HDHP because you want to save on premiums, in the same way as choosing a higher deductible on car insurance or home insurance. You are hoping over the long term the premium savings will be more than the occasional unexpected expenses. This post is conditioned on having already decided to go with a HDHP.
5. KD on November 9, 2011
   
    

   OK, got it. As you know healthcare costs are increasing faster than inflation and most likely even faster than most investment returns. In this scenario won’t the risk of increasing healthcare cost diminish the benefit of lower premiums over the longer run. For example, a certain treatment cost $200 today but but due to cost increase costs $350 in a few years. The proportional premium increase may be somewhat lesser due to shared costs – or may be not. Also the risk for out of pocket expenses increases the fastest with HDHP (The probability that you may have to incur those expenses as you age and the hole they will burn in your pocket – larger and faster – shielded by HSA but not really if healthcare costs grow fast). May be I am not viewing this correctly so please correct as necessary. I am trying to understand the nexus of health risk, healthcare cost risk and benefit of lower premiums and HSA. I wish there was a simple algebraic equation to state it. Also if you are healthy then all of this becomes moot.
6. MC on November 9, 2011
   
    

   If you are in California, one of the few states that does not recognize HSAs, the only way to preserve full tax deferral of HSA accounts is to invest in treasury bills, notes, and bonds. HSA Bank (through TD Ameritrade) provides one way to do that.
7. Robert Johnson on November 9, 2011
   
    

   The current non conforming states are:
   Alabama, California, Maine, New Jersey, Pennsylvania and Wisconsin

   Wisconsin passed legislation to conform in 2012.

   REFERENCE: http://www.ncsl.org/IssuesResearch/Health/HSAsHealthSavingsAccountsandtheStates/tabid/14462/Default.aspx
8. Thooda on November 9, 2011
   
    

   I’ve had HSA since 2007 and my Alliant HSA since 2009. I contribute via payroll direct deposit.once a year I do custodian to custodian transfer from alliant to HSA administrators. Been doing this for last couple years.
9. Dan on November 9, 2011
   
    

   A very useful article, TFB. I’ve thought about maxing out my HSA to get a bit more tax-advantaged space for investments, but with such high fees it seemed pointless.

   Why does Vanguard only offer its funds through HSA Administrators, rather that offering such accounts itself? With the fees, I’d effectively be paying an 3% in expenses for the first year, and at least .32% on an ongoing basis. Vanguard funds are a whole lot less appealing with such high expenses…

   Alliant CU does seem like a viable option in terms of paying a decent rate comparable to short-term bonds. Is this the highest interest rate available for an HSA currently?

   Is it possible to rollover one HSA into another as often as desired? I’d want to make contributions directly to my employer’s chosen custodian, in order to get the FICA benefit, and then transfer them to something higher-yielding.
10. Chris on November 10, 2011
    
     

    “The HDHP only makes sense if you are healthy. ”

    Arguably, it also makes sense for those who may be very sick and/or have extremely high medical costs, as long as the HDHP has a true maximum out-of-pocket ceiling.

    It seems not to work as well for those “in the middle,” who have middling annual health care costs. (But each person has to run the numbers for their individual HDHP to be sure.)
11. TFB on November 11, 2011
    
     

    @Dan – I’m guessing Vanguard doesn’t want to perform the administrative chores associated with HSAs. It does for IRAs but the IRA market is magnitudes larger. Adirondack Trust Company, a bank in upstate New York, pays 3% on a HSA, but it charges a $25 setup fee and a $4 monthly fee. Ignoring the one-time setup fee, you will have to have more than $5,000 in the account to beat the 2% from Alliant CU. Besides the convenience factor because I’m already a member of Alliant CU, I trust Alliant CU to remain competitive more than Adirondack Trust Company.

    You can do a trustee-to-trustee transfer at any time but the outgoing account may charge you a transfer fee. You are allowed to do a rollover yourself once a year – write a check from one account and deposit it in another within 60 days.
12. nickel on November 11, 2011
    
     

    We’re currently paid a pittance on our HSA balance, but it will go to 2.25% once our balance reaches $15k — assuming they don’t pull the rug out from under us at that point.

    In the mean time, I need to keep the employer account open (and contribute to it) to capture my employer’s match. And I need to keep at least a $3k minimum balance (earning close to 0%) in order to avoid the monthly fees ($3-$4/month).

    So I can just let the money sit there and earn nearly nothing, but not incur fees, or I could move some or all of it to another provider. If I leave $3k behind to avoid fees and move the rest, then I’ll have $3k earning nothing, which is equivalent to a $30-$60 annual fee (assuming I could earn 1-2% elsewhere).

    Once at a new provider, I could either earn a savings-like interest rate, or I could branch out into mutual funds or ETFs. However, many places have a cash balance minimum to avoid fees even if you have a large balance through their investing platform, which could mean another $3k or so sitting idle and earning very little.

    I could rate chase with Adirondack or Alliant, but it’s a lot of work, and I don’t trust that they’ll keep their rates high.

    This is almost enough to make me just start drawing down my HSA balance and using it to pay for ongoing medical expenses rather than holding the cash back and building up an extra tax-advantaged investment account.

    In the short term, we will likely leave it in place. We should reach $15k sometime in the coming year (we’ve contributed the family max of $6k-ish during the past two years, and will do so again this year). At that point, if the bank doesn’t screw us*, we’ll be making 2.25% which isn’t bad at all given the current rate environment.

    In the long run, if our employer stops matching funds, I’m not sure what we’ll do. That FICA avoidance, even at just the medicare rate (good point on that, btw), is around $90/year — but that may wind up being a small price to pay in return for simplicity.

    *I have a sneaking suspicion that they will screw us, however. The HSA has only been an option for us the past two years, so it’s impossible for anyone at our workplace to have reached $15k. Thus, that 2.25% is a nice, but purely theoretical, carrot. Once people get there, I can easily imagine the bank re-working their rate table.
13. Sher on November 11, 2011
    
     

    Nickel, you might be onto something here. This seems to be one of the oldest tricks in the book.

    Take your cash now (fees), in small amounts, but regularly, each month. Then promise you rewards (always in the future), which they reserve the right to remove at pretty much any time.

    Who knows maybe the economy will improve and you’ll get your 2.25% then…

    How are your investment options, btw. I found these mostly lacking with the HSAs.
14. nickel on November 11, 2011
    
     

    The investment options from my employer’s custodian are abysmal. 5% loads and 2%+ expense ratios. Absolutely horrible.
15. Dan on November 11, 2011
    
     

    Nickel, I have the same problem as you. My employer’s custodian offers abysmal investment options and/or very low interest rates for HSAs. At least there’s no monthly maintenance fee.

    I’d like to max out my HSA, since it’s a great new source of tax-advantaged space for retirement. But it seems that those of us who are “early adopters” are betting on the appearance of low-cost investment options for HSAs in the near future. As Sher suggests, this is kind of a gamble… current HSA custodians could crank up the fees even further and there’d be no decent place to put the money until someone like Vanguard enters the market directly.

    TFB’s 2% rate from Alliant seems decent, and I think a not-for-profit credit union is less likely to screw its customers than a bank. I’m thinking of opening an account just for this reason.
16. Cleotus on November 12, 2011
    
     

    I’ve had my HSA at HSA Bank since 2008. I have all of my HSA funds at TD Ameritrade. Until a couple months ago the annual fees were only $27 per year; they are now $66 per year (assuming you have all of the funds at TD Ameritrade)

    I have an approach that has not been mentioned yet. Note: I plan on contributing the maximum each year and never withdrawing a dime until age 65.

    My understanding is at age 65 the HSA turns into both a traditional IRA as well as maintaining it’s HSA status.

    So, even in retirement I can withdraw money for qualified healthcare expenses and not pay taxes or I can withdraw money to be used for non-healthcare uses and pay my marginal tax rate.

    Considering this, I have my asset allocation somewhat mirror my overall portfolio. I do this because I see this money as having an exclusive use that none of my other retirement money possesses – I can use it tax-free for medical expenses from age 65 until my death.

    With TD Ameritrade’s no-commission ETFs (many Vanguard) I have built a garden-variety diversified portfolio a la Fama/French but with a bit of a Swedroe influence as well as value tilt (for instance VIG + VYM & VBR rather than VTI, since I do not pay taxes on the dividends now among other reasons)

    Regardless of my asset allocation — is my reasoning sound? Treating this as separate from everything else in my portfolio? If I keep only treasuries in my HSA or keep my HSA money in a savings account I am nearly certain that I will end up with a lower balance at age 65 (just over 25 years from now for me) than if I invest in a diversified portfolio of stocks/bonds.

    Thanks to TFB for discussing this important topic.
17. White Coat Investor on November 12, 2011
    
     

    Great article. I learned two things from it I didn’t know before:

    1) You can withdraw HSA money later (2 decades from now) using receipts from now (right?)

    2) Alliant 2% HSA/short term bond trick. That’s more than the G fund is paying right now.
18. dd on November 30, 2011
    
     

    TFB, thanks for writing about Alliant Credit Union. I took a look at the website and opened two accounts at Alliant yesterday.
19. Rabbmd on November 30, 2011
    
     

    My s corp uses a broker for health insurance. We currently pay $100 a month for all 14 employees to have a hsabank hsa or hra. I have to hsa, and all fees are waived as a result. I use both alliant credit union and td ameriteade for my hsa. Since my wife and i are relatively healthy, and have had an hsa for years, we have like $8000 in alliant and $12,000 in td vanguard etfs/funds. I can not use the cafeteria option as i am an s corp owner, however maybe people could look into getting a broker to use hsabank. This might eliminate a lot of the fees people face.
20. TFB on November 30, 2011
    
     

    @Rabbmd – HSA Bank isn’t charging you fees because it’s paid by the insurance company. You are still paying the fee, perhaps both for you and your employees, through the insurance premium.
21. SanDance on January 9, 2012
    
     

    Alliant HSA is now at 1.75%
22. Dan on January 9, 2012
    
     

    TFB, thanks for the excellent article.

    One small point about HSA Administrators: they waive the setup fee if you transfer funds (any amount, seemingly) from your current custodian. And they list an annual fee of only $36 on that form too: http://www.hsaadministrators.info/images/stories/HSA/forms/transwithenroll.pdf

    With an annual fee of $36 + 0.32%, I’d effectively be paying 1.52% of the $3,000 I’ve got in my HSA, though that’ll be down to about 0.9% after another year’s worth of contributions. I’m still trying to decide if it’s worth it for me to pay these steep expenses or just leave the money in my employer’s default Chase HSA (0.40% APY) until I’ve got a bigger chunk of money in the HSA to invest.
23. Brendan on February 10, 2012
    
     

    I’m a little unclear on the mechanics of the FICA benefit people are talking about. I make a small contribution from my paycheck each month (about $160) and then make a roughly $2000 lump sum contribution at year end. I could break the $2000 lump sum into monthly contributions that get deducted from my pay, but don’t I get the same reduction in FICA taxes when I complete my tax return for the year. Making the contribution at year end gets reported on my tax return and I get a larger refund. I understand I lose some time value of money with this approach, but doesn’t the FICA issue become a wash?
24. TFB on February 10, 2012
    
     

    @Brendan – FICA is Social Security and Medicare taxes. If you are not making your $2000 lump sum contribution through payroll, you are not getting a deduction on FICA. Putting it on the tax return on your own gets you a deduction for federal income tax, and state income tax in most states, but not Social Security and Medicare taxes. If you are making your $2000 lump sum contribution through payroll, then it doesn’t matter whether you do it monthly or at the end of the year.
25. Rick Van Ness on June 4, 2012
    
     

    Update: Alliant interest rate has fallen to 1.25% for HSA but I’m choosing to go with them. Thank you for your informative and helpful article.

    I don’t believe it is possible for them to automatically make your donation to Foster Care To Success with either the online or the paper application. You do this separately. I applied to Alliant online. When you get to the page Tell Us About Yourself, select “I below to the following association or organization” and a pop-up box will appear where you then select Foster Care To Success. They generate an interesting set of questions to authenticate your identity. In my case, one of my questions asked me to recognize a phone number from too many years ago (multiple choice) and I failed to get approved immediately. However, after the weekend they sent me an email that I have been approved—so, in the end, it was a piece of cake after all. Thanks again for the helpful article.
26. Heidi on June 13, 2012
    
     

    I moved my HSA funds to Connexus Credit Union http://www.connexuscu.org . There’s no set up fee, no monthly fee, and it’s currently paying 2%. If you don’t meet their criteria for membership, you can simply make a one-time donation of $5 to join the Connexus Association and you become a member.
27. Mark Hense on December 18, 2012
    
     

    The APR on this is down to 1.25
28. JK on December 22, 2012
    
     

    Isn’t Alliant charging a per month fee for self-managed investment account for HSA? I didn’t see it referred in any of previous posts so can someone who has an HSA with Alliant confirm?

    http://www.alliantcreditunion.org/depositsinvestments/investmentservices/selfmanagedinvesting/
29. Harry Sit on December 22, 2012
    
     

    Only if you use the investment option. No fee for the savings account, currently paying 1.25%.
30. D00D on January 24, 2013
    
     

    Are they still making the donation or the minimum deposit for new members? $10 is no biggie but just thought if they are still doing it, it would be nice to take advantage of it.
31. Harry on January 25, 2013
    
     

    D00D – It looks like they stopped doing that. I updated the post to remove outdated info.

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