Where to Open Your HSA: Goals and Features
How to Pick a Bank For HSAs
A health savings account (HSA) is a valuable tool for covering your healthcare expenses. It can also help you reduce your tax bill. Picking the right account is essential for reaching your goals, so how do you know which provider is best?
Choosing HSA Providers
Almost any bank or credit union can offer HSAs. If you’re happy with the financial institution you bank with already and convenience is number one on your priority list, you can just add an HSA to your existing relationship.
However, there are other important factors to consider before you open an account.
Your intentions: first, think about how you plan to use the account. Will you spend the funds every year, or do you plan to let the money accumulate over the long term? If you’ll spend it as it comes in, the interest rate paid on your savings might not be a big deal. But if this account will supplement your retirement savings, long-term returns are more important.
Adding money: will you make contributions, will your employer do it, or will both of you add to the pot? It needs to be easy to make those contributions – preferably electronic – so that the money actually gets into the account and you can take advantage of the tax benefits.
Fees: most tax-preferred accounts charge fees, but fees vary and they are sometimes waived with larger account balances. Occasionally, you’ll find a small credit union that offers fee-free HSAs. Find out how much it costs to maintain the account, and evaluate how those costs might affect your return. A bank that pays 1% more isn’t worth looking at if the fees more than erode that extra 1%. Again, consider how you’ll use the account, and look at fees for spending the funds (if you never plan to spend the money, it doesn’t matter what they charge per withdrawal).
Spending your money: if you plan to use money from your account regularly, how easy will that be? Do you get a debit card to access funds, or is the process more cumbersome? Debit cards help you keep an electronic record of where your money goes (although you should always save receipts) and they make quick trips to the pharmacy easier.
Using your Account
Remember that HSA contributions are only available when you’re covered by an eligible high-deductible health plan (HDHP). Unlike flexible spending accounts (FSAs or cafeteria plans), you can leave money in your HSA beyond the end of the year and save it for when you need it – it’s not “use it or lose it.” What’s more, the account is your account and is not tied to your employer. Don’t feel like you need to spend down funds before you leave your job.
To get the best tax treatment, the funds must go towards qualified medical expenses, but there are other ways to use the money with less favorable treatment.
Opening an Account
Opening an HSA is similar to opening any other bank account. You’ll need to provide information about yourself, including a form of government-issued ID. Banks generally do not ask for verification of your HDHP – that’s between you and the IRS. However, activity such as contributions and distributions (spending and withdrawals) will generally be reported to the IRS each year.
Tax laws are complex and subject to change. Consult a professional tax advisor regarding your individual situation. Discuss your long-term goals with a financial planner licensed in your state before opening an account.