What to Look for When Shopping for a Health Savings Account

Ivanna Hampton: Health savings accounts, or HSAs, offer a way to save for medical costs. People can use these tax-advantaged accounts today or wait for retirement. Morningstar has evaluated and ranked HSA providers on how well they help people meet their goals. Morningstar Research Services’ Senior Manager Research Analyst Greg Carlson has more on this year’s top providers.

Thanks for being here, Greg.

Greg Carlson: Thanks, Ivanna. Great to be here.

Hampton: So, we’re coming up on the 20th anniversary of HSAs. How far has the industry come?

Carlson: HSA providers have improved their offerings over the years, certainly. Fees have come down to an extent. Investment and use have improved as well. Also, contribution limits have been raised over time, so participants have the ability to put away more money, both to pay for medical costs as well as save for the long term. The landscape has also changed. There have been a number of mergers in the industry over time, and occasionally a new provider emerges. The most recent merger was in late 2022 when UMB acquired the HSA Authority.

Hampton: Morningstar grades HSA providers each year. What did researchers factor into their rankings?

Carlson: We assess HSA providers on a number of measures. We start out evaluating them on two different use cases. First, as spending accounts for medical costs. Here, we look at maintenance fees as well as the interest rates being paid by providers on account balances. The second use case is as an investing account. We looked at factors such as the design of the investment venue, the quality of the investments, the fees being charged by those investments, as well as the HSA providers, and finally, the investment threshold. That is, most HSA providers require participants to have a certain minimum balance in their accounts before they’re able to access the menu of investments.

Hampton: All right. And since HSAs can be divided into those two camps, spending and investing, let’s start with spending. What makes an HSA provider a good match for someone using their account to cover current medical costs?

Carlson: If you’re simply looking for an HSA account to save toward ongoing medical costs, the two most important factors are low fees and a competitive interest rate on your savings. Maintenance fees are on the decline. Most of the 10 providers that we surveyed no longer charge a fee. Others typically waive the fee when you reach a certain savings balance. While interest rates have risen dramatically over the past two years, most HSA providers unfortunately do pay low rates on savings, often below the national average for FDIC savings accounts.

Hampton: Now, Morningstar rank the best HSAs for spending. Who made the top three and why?

Carlson: We have to start with Fidelity. It was the only HSA provider to earn a High assessment on its spending account features. Like many others, it does not charge a maintenance fee. And where Fidelity really distinguishes itself is on the interest-rate front. It recently paid about 2.7% on all account balances. All the other providers we surveyed paid 1% or less on FDIC-insured options, and some paid 0.1% or less on modest balances. Second and third would be First American Bank and HealthEquity, which don’t charge maintenance fees and at least paid competitive rates on balances above a certain amount.

Hampton: So, let’s shift to the goal of letting HSA contributions grow and using that cash in retirement. What should be on the checklist when looking for a provider in this case?

Carlson: The first thing I would say here, Ivanna, is that the vast majority of participants do not use their HSAs to make long-term investments. One reason may be that minimum investment threshold that I just talked about. So, you should make sure that the provider in question has a minimum savings requirement that you can exceed in order to invest for retirement. You’ll also want a menu of investments that is easy to navigate, one that doesn’t offer a confusing mix of overlapping options or that loads up on volatile investments. And the investments themselves should be of high quality, well-managed, passive or active funds or ETFs. Fortunately, this is an area where all 10 providers are doing well. Every one of them earned an Above Average rating on this measure. And finally, you want to see low fees from both those investments as well as the HSA providers themselves.

Hampton: So, if you are using your HSA for investing, what are the top three for investing and why?

Carlson: Here again, Fidelity earns the only high rating. The investments and the menu design are both rated Above Average. We think that the investment list is diversified without being overly complex, and fees are among the lowest in the industry. Associated Bank and HealthEquity are tied for second. Associated Bank’s menu design is one of the best around. It’s efficient, and it has just a couple of specialty options for diversification. Fees are only Average though on this plan. HealthEquity is kind of the opposite. The menu has lots of passive options that are cheap. Thus, it looks really good on fees. However, there are probably too many niche choices on that menu.

Hampton: All right, Greg. Well, thank you for your time today and giving us a rundown on the best HSAs for investing and spending.

Carlson: Thanks, Ivanna.