Investing Gains Clout With Health Savings Account Holders
By Adam Shell | Originally posted in Investor’s Business Daily
Health savings accounts, or HSAs, have been infected with the investing bug. And that's a healthy development for Americans who will need to pay for rising health care costs in the future.
Indeed, more Americans with a health savings account now view these triple-tax-advantaged accounts designed to pay for medical expenses as the health care equivalent of the 401(k) plan.
Sure, most people with high-deductible health plans (HDHPs) still use the money they contribute to HSAs to pay out-of-pocket medical expenses and doctor co-pays during the year. But an emerging trend is gaining traction: More HSA account holders are investing part of their HSA deposits for the long term.
More HSA dollars are being invested in assets with growth potential, such as diversified stock mutual funds. At the end of June, there were 38 million HSA accounts with assets totaling $137 billion, up 18% year over year, according to Devenir Research's midyear survey. And $56.2 billion, or 41% of those dollars, were invested. Ten years ago, just 14% of HSA assets were invested.
Still, just 9% of HSA accounts had at least a portion of their HSA dollars invested, a low total that HSA experts say amounts to a missed opportunity for account holders.
Bull Run Drives Health Savings Account Asset Gains
Thanks to the bull market on Wall Street and sharp rise in stock prices, invested HSA assets jumped 39% in the 12 months ended June 30, according to Devenir.
"The light bulb went on; the gotcha moment for people is the investment component of HSAs," said Eric Remjeske, president and founder of Devenir Research. "People are starting to invest and they're seeing some of that growth in their accounts."
A Morgan Stanley blog post dubs HSAs "an overlooked retirement savings vehicle."
No doubt, HSAs, which are only available to people enrolled in high-deductible health plans, are a powerful savings and investment vehicle.
The reason? Health savings accounts offer a trio of tax breaks. Any money contributed to HSAs goes in tax-free. Any interest and gains that account holders earn also can grow tax-free. And withdrawals are tax-free, too, if used for qualified health care expenses.
"There is no better tax-efficient vehicle than the HSA," said Roy Ramthun, founder and president of HSA Consulting Services.
Karen Volo, senior VP and head of health and benefit accounts at Fidelity Investments, the nation's second-largest HSA provider with $24 billion in assets, says there are three types of HSA customers: spenders, savers and investors. Currently, seven out of 10 of Fidelity's 3.5 million HSA account holders spend a portion of their HSA account balances, Volo says.
Fidelity again takes top honors in IBD's 2025 list of the best HSAs, winning category awards for Widest Investment Options, Low Fees, Best Savings Rates and Zero Investment Threshold. Read about all the best HSA offerings here.
Last year, the average overall HSA withdrawal amount per account was $1,309. And, so far this year, the average transaction size, or withdrawal to pay for medical expenses, was $116, Devenir data shows.