Our HSA Investment Options are Horrible

Not quite a year ago we made the decision to switch to a high deductible health plan (HDHP). In our case, it was a no-brainer. The quality of the coverage was just as high as with our old plan; the only difference was a $3000 family deductible.

Because we opted for an HDHP, we were also able to open a health savings account (HSA). While we’re free to choose our own custodian, we went with my employer’s preferred custodian in order to take advantage of the “seed” money that they were offering.

After nine months on the HDHP, we couldn’t be happier. We hit our deductible back in May, but are miles ahead of where we would have been if we had stuck with the old PPO. Not only that, but we have a bunch of money socked away in our HSA.

Speaking of the HSA… We’re planning on using it as an alternative investment vehicle. As I’ve mentioned previously, the HSA is an ideal tool for juicing up your retirement savings. Our plan is to leave the money in place and invest it instead of pulling it out as we incur medical expenses. As long as we save the necessary documentation, we can always pull it out later.

Sounds like a great plan, right? Well, we just passed the balance threshold to start investing, so I was finally able to get in and start poking around. Believe it or not, we couldn’t actually view our fund options until our account got over the minimum balance for investing.

Anyway, now that I’ve had a chance to look, I’ve discovered that our investment options stink. The available funds include a handful of Fidelity Advisor Freedom funds as well as a bunch of First American funds. Care to take guess what the fees look like?

Every single fund has a front-end sales load ranging from 3.50% to 5.75%, and the ongoing expense ratios are also quite high, in the 1.25% range. This is totally unacceptable, so we’ll be taking our business elsewhere.

The good news is that we can transfer our money to another custodian. Now that we’ve received all of the seed money, we’re free to go ahead and do so. I’ve previously asked for (and received) recommendations as to the best HSA custodian. It’s now time to dig in and figure out where to move our money.

12 Responses to “Our HSA Investment Options are Horrible”

  1. Anonymous

    You have to check out the HSA investment options at Alliant Credit Union. It’s a credit union and easy to become a member. They offer an HSA investment link to an HSA savings with an interest rate of 1% or better. You have to look into it!

  2. Anonymous

    I found an HSA Forum with a lot of discussion and current on deals. Its on Fat Wallet’s site.

    They mentioned using the employers HSA to still avoid taxes paid for FICA. But, then using a “trustee to trustee rollover” to get money into a better interest paying w/lower fees HSA. A lot of education available by just reading the discussions.

    If you just want a FDIC approved account,
    Current top of their list is Adirondack Trust Company(http://www.adirondacktrust.com) paying 5%. $100 min deposit.
    * Interest bearing checking account
    * Interest earnings credited monthly
    * No minimum monthly balance requirement
    * Free unlimited check writing access
    * Free ATC wallet style checks for life of the account
    * Monthly account statement
    * Visa® debit card
    * Free ATM access
    * No ATC surcharge fee when using other ATMs
    * Free online banking access through Webwise®
    * Free online bill pay service through Webwise®
    * Monthly account statement options:
    o e-statement with check images (front and back) via Webwise®
    o paper statement (no checks)
    o Paper statement with check images (front and back)
    * Payroll direct deposit eligible
    * FDIC insured account
    * Year-end IRS reporting
    * Bank to Bank transfer eligible (transfer your HSA to ATC)
    * No enrollment or monthly management fees

    I think they should be listed on the front page so people can compare their rates in their research.

    APY Interest Rate Compounded Minimum Balance
    Their Health Savings Account rate: 5.00% 4.89%

    If anyone else has a good source or forum, please let us know.

  3. Anonymous

    sorry, i put the link in the website field but it didn’t show up in my response. it’s: http://hsaadministrators.info/
    I called them and they were so responsive and i liked their vanguard no-load mutual funds so i went for it. I had a hard time finding other companies with those options and that answered the phone! good luck!

  4. Anonymous

    I’m curious as to who you chose, did you have a comparison chart of the finalists to post?
    I have to make a HSA decision pretty soon also.

    There is a cheap HSA that offers no load Mutual Funds from Vanguard, Karen? Who?
    Is there a HSA provider with the right balance of costs and investment choices?


  5. Anonymous

    Rather than use my HSA as an investment vehicle, I only keep a few hundred dollars in it, and transfer money in as needed. This makes my medical expenses tax free, and keeps my money in my preferred investment accounts.

  6. Anonymous

    We love our HSA Administrator! They offer no-load Mutual Funds from Vanguard with 22 choices (10 of them being Admiral class). There are no minimums or redemption fees either. We just switched to this and are very happy with the Vanguard options.

  7. Anonymous

    I’ve become rather “shy” about HSAs, despite believing in them. A couple of years ago I bought my own health insurance, since I didn’t qualify through my employer. Unfortunately, the contributions were regarded as coming from pre-tax dollars by the IRS, so come tax time to file, that put me in a higher tax liability. I was actually depositing post-tax dollars to the account. I wasn’t sure where to go from there.

    I currently have employer-sponsored health care, but it will expire the end of this year. 🙁 So, I am looking into once again getting health insurance with an HSA and including my currently unemployed college graduate daughter on the plan. How do I go about keeping myself in a low tax liability bracket?

    Things can certainly turn around for my DD, as she is awaiting word from Americorp for selection into the program…..but I digress. I, too, would like to invest in the way you are, Nickel.

    I guess if I am patient enough to wait until after the November election, I will be able to decide in which direction to go…..

  8. Anonymous

    I think HSAs should be used for their primary intent: covering out of pocket medical expenses. These are not meant to be investing vehicles, if they were everyone would have them.

    The high fees are likely related to the additional paperwork related to IRS regulations, etc.

  9. Anonymous

    Not a surprising outcome. The Investment banks, and Insurance companies market with the motto of: “Make a product that everyone wants, then find the money to pay for it”. Surprise – end user pays for it. However, very nice you can take the business (money) elsewhere.

  10. Anonymous

    My company has the HSA plan set up with HSA bank which allows investment through TD Ameritrade. No minimum to invest but they charge a $2.25/mo fee if you don’t meet a minimum $3K in the savings account offering 1% interest.

  11. Anonymous

    Unfortunately for you-HSA are viewed through a political lense by Congress. They are loved by the Rs and lukeworm or despised by the Ds. So what does this mean–for the time being while the Ds control HSAs are going to be marginalized and over time they will be less and less of an investment vehicle/health provider for you. The route you chose is not the route the new health care bill is going is it? I may be wrong but check this out before you go all in.

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