Understanding Investment HSA Fees
When you open an HSA, you are subject to a long list of potential fees. These fees are disclosed on a plan administrators schedule of fees. Some you can avoid, and some you can’t. It’s important to know how not to incur the unnecessary ones, and how much the required fees will eat into your HSA balance. For the purposes of this article, we are going to focus on the types of fees HSA investors are likely to encounter.
Maintenance/administrative fees are charged by HSA administrators for managing the account, keeping records, and sending out the appropriate forms, statements, and tax documents. Some administrators waive this fee if you have a certain amount of dollars in the checking account. For example, HealthEquity waives it's maintenance fee if you keep $2,500 in the HSA checking account. A lot of HSA administrators charge $1-$2 per month for sending out paper statements, but this fee can be avoided by enrolling in e-statements.
HSA investors are charged an investment fee to gain access to an investment account. The investment fee can also encompass fees related to transaction costs and administrative duties. The investment fee is usually a flat fee but can be charged based on the amount of money in your investment account as we'll explain in the next section.
Some HSA administrators charge an asset-based fee. For example, Health Savings Administrators charges a custodial fee of 0.0625% per quarter or 0.25% per year. On an average yearly balance of $10,000, the annual fee would amount to $25. However, on an average yearly balance of $50,000, the annual fee would amount to $125. Investors are able to stomach these types of fees when balances are small. However, as balances grow, these fees can become extremely lucrative for the HSA administrator. In general, flat investment fees are kinder to investors pockets as balances grow.
Take a look at the projected fees of two administrators. The HSA Authority charges a $36 annual investment fee and HealthEquity charges an annual 0.40% custodial fee. We'll also assume a fund expense ratio of 0.05% for The HSA Authority and 0.02% for HealthEquity.
Opportunity Cost Fee
If you are using an HSA as a retirement account, you want every dollar working for you. Some HSA administrators have peg balance requirements, which means a certain amount of money has to stay in the HSA checking account. Peg balance requirements can range from $500 to $3,000.
This fee is not deducted from your account, but the opportunity to earn money on your dollars is lost. For example, the opportunity cost of $1,000 not invested is $70 if you assume a 7% rate of return and $0 earned in the checking account.
Finally, those with access to brokerage accounts sometimes pay a commission to buy stocks, bonds, or options. A good way to avoid this fee is by signing up for commission-free programs offered by the major brokerage houses. No transaction fee (NTF) funds are another way to keep transaction costs down.