Best Health Savings Accounts (HSA) for 2021
While many people are well aware of runaway health insurance premiums, less discussed are the equally disturbing increases in copayments, deductibles, and coinsurance provisions.
They can amount to thousands of dollars each year, on just a single major medical claim. Meanwhile, the tax-deductibility of medical expenses is complicated and unavailable to most taxpayers.
That’s why Health Savings Accounts, or HSAs, are becoming more popular every year. They offer more people an opportunity to get a tax break on their medical expenses, even if they don’t itemize on their tax returns.
Moreover, choosing the right HSA gives you another long-term, tax-advantaged investment vehicle that lets you grow your savings toward financial independence and/or early retirement.
What is a Health Savings Account?
An HSA is something like a medical IRA.
You contribute funds to the plan, which are tax-deductible. Any withdrawals for qualified medical expenses can be taken tax-free. And whatever you don’t spend can simply be left in the account to either bear-interest or to be invested – much the same way as with an IRA.
HSAs have a lot of advantages, even apart from making medical expenses tax-deductible.
A few of these benefits include:
- HSAs are triple tax-free. Contributions are made with pre-tax dollars, these savings can be invested and grow tax-free, and the withdrawals aren’t taxed as long as the money is used for medical expenses.
- Flexibility in withdrawals. You can withdraw from your account for qualified medical expenses even decades after the expense is incurred. In fact, after age 65, you can pull from an HSA for any purpose – penalty-free – simply by paying ordinary income taxes. There are also no required minimum distributions, so you can leave your money to grow as long as you’d like.
- No income limits. High earners are sometimes phased out of other tax-advantaged accounts, but HSAs don’t have any of these types of limitations.
- You get to choose where you open an HSA. The ability to shop around with any bank or brokerage means you can opt for a company that caters to your situation or goals.
That said, health savings accounts don’t come without disadvantages:
- Strict limitations on who can contribute. HSAs are only available to individuals with a high deductible health plan (HDHP). Without this, you’re barred from an otherwise awesome investment vehicle.
- Substantial penalties for pulling from an HSA for non-healthcare related expenses. Like other tax-advantaged accounts, you have to use the money for its intended purpose (unless you’re over the age of 65). Otherwise, you’re hit with a steep 20% penalty. Fortunately, the IRS definition of qualified medical expenses is pretty generous – and to provide relief for COVID, the recent CARES Act actually even expanded the list.
So now that you have a basic understanding of health savings accounts, let’s look at the best places to open an account.
What Are The Best Places to Open an HSA?
Health savings accounts are offered by a variety of institutions. That can make the decision difficult. But narrowing your options down based on whether you’re looking for an interest-bearing or investment account can help.or, skip straight to our list of the best HSAs
Banks & Credit Unions
Most banks and credit unions offer health savings accounts. Naturally, these are the preferred choices for interest-bearing accounts.
Between the two, credit unions are more likely to offer a combination of high interest and no monthly fees.
You can shop online-only banks and credit unions, or check out those with branches available in your area.
While credit unions offer interest-bearing accounts and banks offer both interest-bearing and investment accounts (mostly in mutual funds), investment brokers provide the widest range of options on the investing front.
With a brokerage, you can engage in self-directed investing in just about any asset classes you want.
If you go this route, make sure the broker offers access to options similar to banks and credit unions, particularly debit cards and check-writing capabilities.
Other HSA Providers
There are also HSA providers dedicated to providing hybrid HSA accounts. With these, you’ll get a checking/cash account along with an investment account.
Funds must be transferred back to the checking account for payment of medical expenses.
Best HSA Accounts for 2021
Here are the 11 best places to open a health savings account today:
- 🏆 Lively: Best Overall
- Bank of America
- DCU Credit Union
- HealthSavings Administrators
- Affinity Federal Credit Union
- Northern Bank & Trust Company
- First American Bank
- The HSA Authority
Lively is an HSA specialist that allows you to either invest your funds or earn interest on cash balances.
The account has no minimum balance requirements, no monthly fees, and comes with a debit card. They also allow you to link your bank account for easy online reimbursements, but they’re mostly paperless, so no option for checks.
Funds held in a cash account earn interest at a current rate of 0.01%. This rate was updated in March 2020 as part of the economic fallout due to COVID.
If you’re saving for retirement or otherwise don’t anticipate needing most or part of your funds, then you can invest your account instead to earn a higher rate long-term.
They offer two options for this: self-directed in a TD Ameritrade (soon to be merged with Charles Schwab) brokerage account, or in a guided portfolio from Devenir.
The self-directed investing account charges no trading or commission fees on stocks, ETFs, or options. The guided portfolio, on the other hand, comes with a 0.50% annual fee.
I especially like Lively’s app, which is user-friendly and lets you store receipts, categorize expenses, track deductible spending, and set up automated contributions. It’s a big step up from the big banks, which often have outdated tech.
Fidelity allows you to open an account with no minimum initial deposit and no fees. The account can be accessed with a debit card. And as one of the largest investment brokers in the world, they offer you a choice between professionally selected funds, target-date funds, or self-directed investing in mutual funds, ETFs, stocks, bonds, US treasuries, CDs, and options.
It’s also worth noting that Fidelity does not charge commissions on stocks, ETFs, and options.
3. Bank of America
With Bank of America, you can open an HSA account with no minimum initial deposit, but they do charge a monthly fee of $2.50.
The account pays interest of 0.03% APY on balances up to $2,500, rising to 0.07% for accounts over $7,500. If you have at least $1,000 in the account, you can also choose to invest in mutual funds. But I like Lively or Fidelity better if you’re planning to go the investment route due to the wider choice of investment assets and no fees.
You can access your HSA funds through debit card, check, or online transfer to your bank account.
Based in Salt Lake City, Utah, this company specializes in HSA accounts. They offer three different investment options, including a low-interest cash account, their Yield Plus account paying higher interest, or a lineup of Vanguard funds.
There are no account minimums and $0 monthly account fees for individuals.
You do need $500 to invest, however, and there is a monthly investment administration fee of 0.03%, capped at a maximum of $10.
If you take advantage of their Advisor plans for investment guidance, there is also an additional monthly advisory fee of 0.05% per month, capped at a maximum of $15.00
Further offers three different HSA types, all with competitive interest rates on your cash balances:
- Further Premium, which offers their highest rates. This account has a $4/month administrative fee but offers interest rates ranging from 0.35% up to 0.70%.
- Further Value, which is a low fee account with an investment option. This account has a $1/month administrative fee and offers interest rates ranging from 0.05% up to 0.20%.
- Further Select, which is an FDIC insured account with an investment option. This account has a $3/month administrative fee and offers interest rates ranging from 0.05% up to 0.10%.
If you want to invest your cash, Further offers two-tiered investing options.
The first allows you to invest any excess over $1,000 into a variety of pre-selected mutual funds. The second tier allows you to invest any excess over $11,000 into a wider range of mutual funds, stocks, bonds, and other investment classes. This is offered through a self-directed Charles Schwab brokerage account.
Whether you opt for one or both types of investment accounts, Further charges an additional $18 annual fee for investing.
Despite the somewhat confusing tiers and account options, Further makes the list because their rates on the cash accounts are super competitive in today’s economic climate. If you’re opting for investing, however, the fees and balance limitations push me to recommend other providers.
6. DCU Credit Union
Their HSA Checking account requires no minimum initial deposit and has no monthly fees. The account comes with a debit card and unlimited check-writing. It currently pays 0.20% APY on account balances up to $1,000, with progressively higher rates moving up to 0.45% for balances of $100,000 or more.
Based in Massachusetts, DCU is available to consumers across the United States.
7. HealthSavings Administrators
This is another investment focused account. You can open either a cash account (with a debit card), an investment account, or both. The cash account pays interest ranging from 0% on balances under $5,000, to 0.25% for balances greater than $25,000.
There is no minimum balance requirement for cash accounts nor to “unlock” the ability to invest your money.
On the investing side, you have your choice of 43 Vanguard and Dimensional mutual funds, which are highly rated and have industry-low average expense ratios. In other words, they’re a great choice for investors who want consistent returns without having to micro-manage your investments or pay the high fees for guided portfolios.
A huge downside to HealthSavings, however, is the lack of transparency in fees. While there are no annual fees for the cash account, the investment account does charge fees. They are referenced on the website, but not specifically disclosed.
8. Affinity Federal Credit Union
This HSA account has no minimum deposit requirement and charges no fees. It offers a debit card with the account, but no checking privileges are indicated. The account currently pays 0.25% APY and can be funded with direct deposits. It’s available primarily to residents of New Jersey and Connecticut, but there’s a long list of exceptions.
Since most credit unions serve consumers who either live in a specific geographic location or work in a certain industry, it’s best to check with institutions in your local area.
9. Northern Bank & Trust Company
The HSA requires $25 to open the account, then no minimum balance. There is no monthly service charge, but there is a $25 account closing fee. As of September 1st, NBTC pays 0.02% on balances less than $5,000, up to 0.20% on balances above $25,000.
You’ll be issued a debit MasterCard as well as checks to pay for medical expenses.
10. First American Bank
You can open a basic HSA account at First American Bank with no minimum initial deposit, and no monthly fees. The account comes with a debit card as well as unlimited check-writing and mobile wallet.
The basic account is interest-bearing, but you can invest if you have at least $2,000 in the checking portion of your account. Funds can be invested in mutual funds, and the monthly fee is $2.95 for the service.
11. The HSA Authority
Part of Old National Bank, The HSA Authority is designed specifically for HSA accounts. They offer no-load mutual funds for investing purposes, and $1,000 is the minimum balance required to begin to invest.
The checking account comes with a debit card, check-writing privileges, and no monthly fees. But there is a $36 annual fee for the investment account.
Quick Summary: Compare the top HSA accounts
|Fee For Cash Accounts||APY On Cash Balances||Fee for Investments||Min to Invest||Investment Platform|
|1. Lively||$0||0.01%||$0 self-directed; 0.50% guided portfolio||$0||TD Ameritrade|
|3. Bank of America||$2.50/mo||0.03% – 0.07%||$0||$1,000||Mutual Funds|
|4. HealthEquity||$0||Varies||0.03% admin + 0.05% advisory||$500||Mutual Funds|
|5. Further||$1 – $4/mo||0.05% – 0.70%||$18/year||$1,001||Charles Schwab|
|6. DCU||$0||0.20% – 0.45%||N/A||N/A||N/A|
|7. HealthSavings||$0||0% – 0.25%||Undisclosed||$0||Mutual Funds|
|8. Affinity Federal||$0||0.25%||N/A||N/A||N/A|
|9. NBTC||$0||0.02% – 0.20%||N/A||N/A||N/A|
|10. First American Bank||$0||0.01% – 0.15%||$2.95/mo||$2,000||Mutual Funds|
|11. The HSA Authority||$0||Varies||$36/yr||$1,000||Mutual Funds|
What to Look for in an HSA
There are a few key aspects to consider when shopping health savings accounts:
1. Access To Your HSA
The best companies offer easy access to your funds.
At a minimum, the account should include a debit card that can be used to pay qualified medical expenses directly and provide a few checks.
But the best HSAs also offer the convenience of online transfers so that you can reimburse yourself for out-of-pocket expenses by making a one-time or reoccurring transfer from your HSA to your personal checking or savings account.
2. Minimal Fees
In fact, the very best HSAs don’t have any fees for individual accounts.
But plenty of companies offer HSAs while imposing various fees, including an activity or a monthly fixed fee. Be wary of these, or at least have a good reason for choosing that company if you do.
3. Opening Deposit and Ongoing Balance Requirements
Opening an HSA account is generally no more complicated than opening any other type of account. You provide basic information, complete forms specific to an HSA account, and make your opening deposit.
This opening deposit is often minimal, like $50 or $100 – sometimes even zero. But it varies from one institution to another, so you’ll need to check.
You’ll also want to understand any ongoing balance requirements. Some administrators waive fees if your account balance is high enough, while others require a certain amount before allowing you to invest your funds versus keeping it as interest-bearing cash.
Understanding these nuances can help you select the best HSA for your situation.
4. Investment Opportunities
This gets back to the IRA nature of an HSA.
Again, any unused funds in the account can be left to grow. Since ultimately an HSA is a tax-advantaged investment vehicle, you’ll want to be able to put that money to work.
At a minimum, an HSA account should be interest-bearing.
For these types of cash accounts (typically through banks and credit unions), you’ll want to compare the interest rates being offered.
But depending on your age and health status, you may also be interested in more aggressive investments. For investment accounts, you’ll want to compare what asset classes are available to you and how easily you can re-balance.
You can open an investment account with a bank (typically to invest in mutual funds), but an actual investment broker will give you the most asset flexibility if you’re interested in self-directed investing.
Interest-Bearing Account vs. Investment Account
Which should you choose? It really comes down to two questions:
- How much do you intend to contribute to the plan each year?
- How much money do you expect to withdraw for medical expenses in a typical year? (I recommend you review your out-of-pocket medical expenses over the past several years to get an idea)
The answer to either of these questions can determine whether you’re better off keeping your money in an interest-bearing account or an investment account.
Investment HSA Accounts:
If you plan to make the maximum allowable contribution each year and you don’t anticipate regular withdrawals (for example, if both you and your family are in good or excellent health), then you can expect the account to grow to a substantial balance.
And if that’s the case, then you might prefer an investment account.
You can use this type of HSA to invest in stocks, bonds, mutual funds, exchange-traded funds (ETFs), or any other investment allowable under the plan.
This will be even more important if you are years away from retirement (lots of time to put compound interest to work!).
Generally speaking, you won’t be able to make contributions to an HSA once you reach 65. However, between now and then, you can build up the account and have it available to cover medical expenses in retirement.
Interest-Bearing HSA Accounts:
Conversely, if you plan to make minimal contributions (perhaps only enough to cover any anticipated medical expenses), or you routinely have high out-of-pocket medical expenses (enough that will challenge the annual contribution limit), you’d likely be better served with an interest-bearing account.
It may not earn as much income as an investment account, but it will offer the complete safety of the principal. That will guarantee your funds will be available when needed.
Do Banks and Credit Unions Offer HSAs?
Both banks and credit unions routinely offer health savings accounts. In most cases, a bank or credit union will set up your HSA using either a savings account or a money market account. Either will be interest-bearing and highly liquid.
Banks and credit unions are the best choices if you expect to be an active user of your HSA account. The funds you deposit into your account will have zero risk, and be available as needed. And if you’re opening an account through your local bank, it may be more convenient than a remote investment broker will be when dealing with local healthcare providers.
Interest that a bank or credit union will pay on the HSA account is not likely to be competitive with the highest rates being paid on deposit accounts you seen advertised.
But it’s important to remember that an HSA is a special-purpose account, and the interest rate return is, at best, a secondary consideration. That will be especially true if you’ll be actively using the account to pay medical expenses.
Opening a Health Savings Account with an Investment Broker
Brokerage firms are more likely to impose a minimum initial deposit into the account, and to charge fees. You’ll need to weigh the fees against the potential investment performance of your account. Be sure to review any restrictions on investment options within an HSA account. A brokerage firm may make certain investments available in the account while excluding others.
But even if they have no restrictions, you may want to lean on the conservative side of the risk spectrum with this type of account. After all, a sudden need for funds to cover a major health event can arise at any time. That makes a strong case for emphasizing better-behaved investment options, like high dividend stocks and index funds. More speculative investments may not be suitable for this type of account.
Just be sure that if you do choose an investment account, at least some of the money should be held in a cash type account for potential immediate use. The reality of healthcare is that the need often occurs suddenly. You won’t want to be caught in a situation where you’ll need to sell investments to cover medical expenses. If those expenses coincide with a decline in the value of your investments, the sale will lock in your losses.
This is when it’s important to remember that the first purpose of an HSA is to cover your medical costs. The investment angle is nice to have, but it’s only a secondary consideration.
Find the Best HSA Account for You
Not only do HSAs have a lot of benefits, but as you can see from the list above, you’ll have plenty of options as to the best places to open an HSA account.
It’s becoming more important every year, as health insurance and out-of-pocket costs rise. But another under-appreciated factor is the changes that took place with the 2017 Tax Cuts and Jobs Act, that ushered in major shifts in the tax code.
Chief among them is the fact that standard deduction has nearly doubled. For 2020, the standard deduction was $12,200 for singles and $24,400 for married filing jointly. With the increase in those thresholds, far fewer people will be able to itemize expenses on their tax returns. That includes medical costs. And that’s where HSAs can help.
Not only will you get a tax deduction for your annual contribution to an HSA account, but that will automatically make any expenses paid out of the account tax-free. That will be even better than itemizing the expenses on your tax return – if you even can anymore.
Health Savings Accounts Offer Tax-Sheltered Investing
And whatever you don’t spend in your HSA account can simply be carried forward and invested in much the same way as an IRA. You can hold the funds in safe, interest-bearing bank accounts, or with investment platforms that allow you to either invest in mutual funds or engage in self-directed investing in just about any asset classes you want.
Since the investment income is tax-sheltered, it can build up just like a retirement account. And whatever you don’t spend out of the account between now and retirement can help provide for you in your old age.
If you don’t have an HSA account right now, there’s no time like the present to take advantage of this major benefit that’s available to nearly all taxpayers. It’s just a matter of selecting the best places to open an HSA. Use this guide as a starting point and make it happen.