Investing Inside Your HSA Healthcare's Best Kept Secret

Investing Inside Your HSA: Healthcare’s Best Kept Secret

Most people have some experience investing through an IRA or 401k. They may even trade stocks in their spare time. It’s easy to assume that for the most part, managing one investment is much the same as any other.

But a Health Savings Account (HSA) is a different animal. While it has a host of unique benefits that make it a top-tier investment vehicle, it also has its own restrictions and quirks that you need to understand before investing. But once you get the hang of it, investing with an HSA will be one of the best financial decisions you’ve ever made.

Unfortunately, 96% of people never take advantage of investing in their HSA. If you’re interested in using an HSA to work towards financial independence, read ahead for everything you need to

How Investing with an HSA Works

Investing with an HSA is similar to setting up your own IRA or using your company’s 401k. First, you need to decide how much you want to contribute every month. Next, decide how you want to invest the money. Do you want to be aggressive or conservative? Do you want a variety of mutual funds or just a couple? Do you want more control over your investments or a more hands-off approach?

If trading your funds manually every month seems like a chore, you can create automatic investments through your HSA. Many HSAs require that trades be at least $100 or more, so keep that in mind.

If you don’t already have an HSA set up, you’ll first have to pick a bank. If you already have an HSA through your employer, you can change it if you become unsatisfied with their investment options. Rolling over funds from one HSA to another is a pretty seamless process. You can only roll your HSA over once in a 12-month period, so do your research before switching banks.

Lively: A Modern HSA

One banking choice for investing your HSA comes from Lively. Lively helps you open an HSA (or transfer your current one) and make regular, automatic contributions from your employer or your bank account. Or you can make occasional, individual contributions as you wish.

Many HSAs come with monthly fees, but there are no monthly fees with Lively. There's no minimum balance requirement either. Your Lively HSA funds sit in an FDIC insured account that earns interest.

And if you decide you want to invest your HSA funds, Lively partners with TD Ameritrade to help you do that.

If you’re unsure how to invest your HSA or how to manage it with your other retirement accounts, talk to a financial planner. They can make sure your HSA choices align with the other funds you hold. A financial planner can also tell you when to open an HSA if you aren’t maxing out your IRA and 401k yet.

Like an IRA or 401k, HSAs have an annual maximum contribution of $3,550 for individuals and $7,100 for families (for the 2020 tax year). If you make automatic contributions to your HSA, make sure they don’t exceed that limit or you’ll have to withdraw the excess or pay a fine.

Withdrawals from an HSA are tax-free and can be done at any time, as long as you’re reimbursing yourself for qualified medical expenses. You can withdraw earnings from your HSA without paying taxes on them as well. That’s part of what makes the HSA a perfect investment vehicle–everything about it minimizes your tax obligation.

Get started with Lively here.

Related: The Triple Tax Benefits Of The HSA

What You Need to Know

Investing with an HSA is similar to creating an IRA, but there are a few different terms you’ll need to know.

Minimum Cash Balance

Most HSAs require that investors keep a certain minimum, uninvested cash balance. The minimum is usually between $1,000 and $2,000. If you have an HSA with $3,000 in it and your
bank requires that you have $1,000 in cash, you can only invest $2,000. The remaining $1,000 might earn some interest, but for the most part, it’s just an unavoidable cost of doing business. Some HSA providers, including those listed below, have no minimum cash balance–that makes them a perfect choice for investors.

Available Funds

While you can’t choose which funds your 401k provides, you do have options when it comes to your HSA. Every bank has its own list of available investments, and choosing a bank with the
best available funds isn’t always easy.

You can also go with a self-directed HSA. These allow you to invest the money almost anywhere you like, such as real estate, commodities or other alternative investments. For someone who likes more control over their investments, this is a great choice.

As with any investment account, an HSA investment charges its own set of fees. Any good FIRE devotee knows that paying unnecessary fees reduces the return on investment. The fewer fees you pay, the more money you collect yourself. Many charge an annual or monthly fee, usually between $2-3 a month.

Best Banks to Invest Your HSA With

Want to invest with your HSA, but not sure where to get started? Here are our picks for the best HSA investment accounts. If you currently have an HSA that you’re investing with, check to see
how much you’re paying in fees and what kind of selection you have.


Financial planner Ryan Inman of the Financial Residency Podcast recommends Lively Full Disclosure: We earn a commission if you click this link at no additional cost to you. . There’s no minimum cash balance required and users can pick from TD Ameritrade funds. The site is easy to use and free from monthly fees.

HealthSavings Administrator

This HSA bank has no minimum cash balance, and according to financial planner Brian Canning, CFP® of Abacus Wealth Partners, a great range of low-cost funds to choose from.

HSA Bank

HSA Bank has a self-directed investment option through TD Ameritrade and no minimum cash balance. The self-directed portion provides more freedom for investors who are comfortable
picking their own funds.

Overall HSA's are a great tool for pursuing FI. You can save pre-tax, then grow and spend the money tax-free.

Fidelity HSA®

Fidelity now offers an HSA that is a brokerage account, not affiliated with your employer. With Fidelity, there are no account opening or transaction fees and you'll have a broad range of investing options. 

Fidelity provides professional, experienced investing help so you can be sure to choose and manage your investments with confidence.

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Investing Inside Your HSA: Healthcare's Best Kept Secret


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4 thoughts on “Investing Inside Your HSA: Healthcare’s Best Kept Secret”

  1. Don’t forget, Fidelity just started offering HSA accounts with no account opening or transaction fees. Plus you can purchase any fund offered by Fidelity.

  2. Don’t forget, Fidelity just began offering HSA accounts with no maintenance fees aside from the fees of the funds you choose to invest in.

  3. My company offers HSA but only savings account. Which means I can’t invest money I contribute. It was mentioned in the article that I can transfer money every year to another bank? Can you please explain little bit more on that?
    Thank you!

  4. Soomin, you’ll need a direct transfer form to transfer between banks. In my experience (having two HSA accounts) I’ve found that each bank may treat this differently. i have a legacy account from my employer’s original HSA (with HSA Bank), and an account with Discovery Benefits of whom my employer now uses. Although, i might be able to just tell my employer to direct deposit my bi weekly funds to my old account, I choose to direct transfer once a year to my old account where i have set up investing through TD Ameritrade (which is directly linked with HSA bank). From HSA bank side, they prefer that you fill out and send their direct transfer form to the bank in which you wish to transfer from (in my case Discovery Benefits). In the past, Discovery benefits had wanted you to use their form when transferring in and out of their bank. I’m not sure if that’s changed or not.

    I hope this helps, or you’ve already found your answer. I’m late to this community but i was trying to back search all things HSA.

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