HSA Bank began offering Medical Savings Accounts (MSAs) in 1997. In 2004, the Bank provided an exclusive focus on Health Savings Accounts and quickly gained a nationwide reputation. In 2005, HSA Bank became a division of Webster Bank, N.A., a subsidiary of Webster Financial Corporation, incorporated in Connecticut. HSA Bank currently administers HSAs for 2.9 million members and has over $7.9 billion in assets.
Report Card for HSA Bank
as an Investment Vehicle
The ideal investment Health Savings Account (HSA) has no investment threshold, allowing the very first dollar you contribute to be invested. If you're using an HSA for investment purposes, seek an administrator that does not hold your dollars hostage in a checking account earning little to no interest.
HSA Bank has established an investment threshold of $1,000. You must always have $1,000 in the HSA checking account. Any excess dollars over this amount can be transferred to the investment account.
Keeping funds in a low-interest cash account means accountholders miss out on those funds’ potential investment returns; this is known as opportunity cost. In a way this is a hidden fee because the opportunity to earn money on those dollars is lost. In the case of, HSA Bank the opportunity cost of $1,000 not invested is $59, assuming a conservative annual rate of return of 6% and $1 earned in HSA Bank’s checking account.
HSA Bank offers its participants a pre-selected investment lineup and/or a TD Ameritrade self-directed brokerage account.
Pre-Selected Mutual Fund Lineup
HSA Bank offers participants a pre-selected investment lineup with a guided portfolio option that allows HSA investment account holders to personalize their asset allocation, using a variety of criteria including; general health, HSA financial metrics, and risk appetite. Once an allocation has been selected, they are then given the opportunity to implement and automatically rebalance those changes in their HSA investment account.
The HSA Bank pre-selected investment lineup is composed of 31 mutual funds with 11 different fund families represented. 54% (19) of the funds in the pre-selected lineup are from Vanguard. The other fund families represented in the lineup are illustrated in the chart below.
The table below displays the number of funds offered for each asset class in the HSA Bank investment lineup.
At the The HSA Report Card we are big proponents of passive index investing and thus rate highly administrators that offer low cost index funds for each of the major asset classes. In the table above, you can see that HSA Bank offers investors low-cost index funds for every major asset class, save emerging markets.
How expensive are the funds in the HSA Bank investment lineup?
In the chart below you can see that when we look at HSA Bank’s investment lineup as a whole, the average expense ratios for the major asset classes are slightly higher than other top administrators.
TD Ameritrade Self-Directed Brokerage Account
HSA Bank also offers a TD Ameritrade self-directed brokerage account which gives investors access to stocks, bonds, and mutual funds. TD Ameritrade used to have an awesome commission-free ETF program, which included many low-cost index funds from Vanguard and I-Shares. However, TD Ameritrade recently announced a change in the funds offered via their commission-free ETF program. They dropped all of the Vanguard and most of the I-Shares ETFs on Nov. 21st, 2017.
Investors can still buy Vanguard and I-Shares ETFs, but have to pay a $6.95 commission for each trade. Unfortunately, this will increase transaction costs for those who trickle money into Vanguard ETFs. A potential solution for this group of investors is a systematic investment plan. With a systematic investment plan there is a $49.99 transaction fee on the first purchase, with ensuing contributions being free of charge. Unfortunately, you can only institute a systematic investment plan with mutual funds.
The new TD Ameritrade commission-free ETF lineup is littered with high expense ratio funds, but there are a few low-cost SPDR ETFs from State Street Global Advisors that are suitable for passive index investors. These funds include the SPDR Portfolio Total Stock Market ETF (SPTM), SPDR Portfolio World ex-US ETF (SPDW), SPDR Portfolio Emerging Markets ETF (SPEM), and SPDR Portfolio Aggregate Bond ETF (SPAB).
Personal Finance App Integrations
HSA Bank integrates with this investment centered platform that allows individuals to get a holistic view of their personal finances.
You can link your HSA Bank account to this budget centered app to get a holistic view of personal finances. TD Ameritrade investment accounts also integrate with Mint.
HSA Bank offers participants an FDIC-insured, interest-bearing account. Interest bearing accounts make sense for participants who are uneasy about investing their HSA dollars in the equity markets. The interest rate available on different balances is as follows.
Fees & Commissions
The HSA Bank pre-selected investment offering now includes a 0.45% annual fee, invoiced quarterly (0.1125% or $1.13 per $1,000). The fee is assessed only on the first $75,000 of the investment account balance. There is a minimum fee of $2.25 per quarter.
HSA Bank participants can evade the maintenance and investments fees by leaving $5,000 in the HSA checking account. Before opting to leave $5,000 in the checking account, take into consideration the opportunity cost of not investing this money.
TD Ameritrade commissions can be avoided by enrolling in their commission-free ETF program.
Tip from a Boglehead - Early each month, they debit the account for $3, so my balance becomes negative ($3), I then transfer $3 from TDA back to cash account, to bring the balance in cash account back to 0. If I leave any balance in the cash account, then they charge additional $2.50 (only up to the available balance in the account, never making the account balance negative, unlike the $3 investment fee). I believe the difference in how they charge the two fees is by design: $3 is for managing the investment account, $2.50 is for managing the cash account. And if the cash account is 0, then it does not need to be managed and no fee charged. - Isui Bogleheads March, 27, 2017
In this section, we have a little fun projecting fees for each administrator. Our goal was to find the path to the lowest possible fees for each administrator. Keep in mind, we are assuming the HSA is being used solely for investment purposes, therefore only certain fees will apply. Given that every HSA is different, there is no perfect way to compare the top 10 administrators in our study. Nonetheless, we gave it a shot and believe there is value in presenting our findings.
In order to compare fees, we made a few simple assumptions:
Every dollar above the investment threshold was invested.
Current and future contributions were invested in a single fund.
No transaction fee (NTF) or commission-free ETF programs were utilized to buy the index funds.
If these index funds were not available under the NTF and/or commission-free ETF programs, we turned to the open market and executed a single trade per calendar year in order to keep transaction costs down.
For HSA Bank we made the following assumptions:
All assets were invested in SPTM ETF (expense ratio 0.03%)
SPTM is a commission-free ETF. No transaction costs incurred.
Annual Investment Fee: $36
Annual Maintenance Fee: $30
The chart below illustrates the projected fees on different investment balances for HSA Bank.
The following chart shows where HSA Bank stands in terms of fees compared to the other top 10 investment HSA administrators.
HSA Bank's fees are reasonable, especially as investment balances grow. In our study of the top 10 investment HSAs, HSA Bank ranked as the 6th lowest cost provider.
In our search for the very best investment HSAs, we looked for administrators that offered a hassle-free investment experience. The HSA Bank HSA is definitely a feature-rich offering in that it gives investors all the necessary tools to easily manage their account. The investment platform is easy to navigate, automated account transfers can be instituted and a receipt storage tool is made available to "shoeboxers."
Pros & Cons
An HSA Bank HSA may be right for you if:
You are happy with the investment options in the TDA commission-free ETF lineup
You desire an online receipt storage tool
You are also planning on spending some of those HSA dollars. HSA Bank is on our short list of the best HSAs for spenders.