[Updated after TD Ameritrade made changes to its list of commission-free ETFs, which affected HSA providers that links to a TD Ameritrade account for investments.]
When I first started my Health Savings Account (HSA), I decided to just use the savings account at Alliant Credit Union. At that time Alliant Credit Union’s HSA was paying 2% interest, which was comparable to the yield on a short-term bond fund. Because money is fungible, I just moved some money from short-term bonds to stocks elsewhere in my investment portfolio. That was as if I invested my 100% of my HSA in stocks.
As time passed, the interest rate on Alliant Credit Union’s HSA dropped from 2% to 1.25%, then to 0.65%. Eventually Alliant Credit Union announced it would stop offering HSAs altogether. HSA Bank and Elements Financial used to be good places for having a linked investment account for your HSA. Due to changes made by the investment account provider TD Ameritrade, the cost of using HSA Bank or Elements Financial increased quite a bit.
Here are the current top HSA providers for investing your HSA money in my opinion:
Fidelity offers HSAs through employers, not directly to individuals. If you get one through your employer, you get to keep it even after you leave that employer. So hang on to it.
You can invest in any investments available in a Fidelity brokerage account. That means Fidelity index funds are commission free, many iShares ETFs are commission free, and Vanguard ETFs are $5 per trade. The account costs $48/year unless you qualify for Fidelity Premium Services which requires $250k or more at Fidelity. I think the complete flexibility is worth $48/year. If you can get it free, all the better.
The HSA Authority
The HSA Authority is a service by Old National Bank. As long as you have over $1,000 in your HSA, you can open a linked investment account. Once you open the linked investment account, you can invest 100% of your HSA; you don’t have to keep any minimum amount in cash. The maintenance fee is $36/year.
Investment choices are limited to a pre-set list. Notable funds on the investment menu with low expense ratios include:
- Vanguard Total Stock Market Index Admiral (VTSAX)
- Vanguard Short-Term Corp Bond Index Admiral (VSCSX)
- Vanguard Developed Markets Index Investor (VDVIX)
- Vanguard Emerging Markets Stock Index Admiral (VEMAX)
There are no additional fees for each trade.
SelectAccount is a service by MII Life, Inc., a non-bank HSA trustee. If you sign up for the ThriftSaver service, and you keep $1,000 in cash, you can invest the rest. The total maintenance fee would be $30/year. The balance in the ThriftSaver account isn’t FDIC insured. If you want FDIC insurance for your cash, you’d have to upgrade to SelectSaver for additional $24/year.
If you have under $10,000 in your HSA, you can invest in a pre-set list of mutual funds. Notable funds on the investment menu with low expense ratios include:
- Vanguard 500 Index Admiral (VFIAX)
- Vanguard Target Retirement Fund series
- Vanguard Small Cap Index Investor (NAESX)
If you have over $10,000 in your HSA, you can open a linked Charles Schwab brokerage account and invest in anything Schwab offers. Here are some examples of commission-free funds and ETFs with low expense ratios:
- Schwab Total Stock Market Index Fund (SWTSX)
- Schwab U.S. Aggregate Bond Index Fund (SWAGX)
- Schwab International Equity ETF (SCHF)
- Schwab Emerging Markets Equity ETF (SCHE)
Saturna Brokerage Services
Saturna Brokerage Services offers an HSA in a brokerage account. You can buy pretty much any mutual fund or ETF for $15 a trade online. Fidelity and Vanguard open-end mutual funds cost $10 extra. If you contribute the maximum once a year and you do one purchase, you only pay $15 or $25 per year.
For a complete walk-through of setting up the HSA at Saturna Brokerage Services, see HSA Transfer To Saturna Brokerage Services.
Saturna Brokerage Services is the best HSA provider for investing HSA money if you can limit yourself to one purchase per year. If you purchase more frequently, consider SelectAccount or The HSA Authority.
Transfer or Rollover
If you are interested in moving your existing HSA to any of these three providers, you can do it either as a transfer or as a rollover.
A transfer doesn’t pass through you. There is no frequency limit on transfers. You start with filling out a transfer form from the receiving/new HSA provider. You send the completed transfer form with any required documents to the receiving/new HSA provider. They will take it from there and request the transfer from your current HSA provider. Your current provider may charge you a fee for the outgoing transfer or account closure.
If your current provider charges a fee for the transfer and you’d like to avoid it, you can do a rollover yourself, but you can only do it once per rolling one-year period (not calendar year). See How To Rollover an HSA On Your Own and Avoid Trustee Transfer Fee.
[Photo credit: Flickr user 401(K) 2013]
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