Top Health Savings Accounts Named

Morningstar is out with its eighth annual study of Health Savings Accounts and its top pick, Fidelity, remains firmly in the number one spot.

The study noted that as the availability of HSAs has grown, assets held in the accounts have grown and so has account quality. For example, fees have declined while investment options have expanded. However, it also pointed out that most accounts “pay paltry interest rates on savings account balances, even two years after rates began rising.”

When it looked more specifically at how each account helps people 1) save for current health care expenses and 2) invest for future expenses, just four of the providers earned “above average” or better ratings on both dimensions. And only one, Fidelity, earned a “high” rating for both.

The study noted that Fidelity offers an interest rate of 2.69% on all savings account balances, far surpassing the other providers, none of which offer more than 1%. Fidelity also earned praise for not charging maintenance or other fees.

SMI has written several times about the benefits of treating an HSA as another retirement account. Unused HSA money can be rolled over from one year to the next without restriction (unlike Flexible Savings Account money), can be invested for later-life medical expenses, and receives three levels of tax benefit, as depicted in the table below. No other type of account provides all of the tax benefits offered by HSAs.

• Contribution - Tax-deductible
• Investment Growth - Tax-free
• Withdrawals - Tax-free

• Contribution - Tax-deductible
• Investment Growth - Tax-free
• Withdrawals - Taxed

• Contribution - After-tax
• Investment Growth - Tax-free
• Withdrawals - Tax-free

• Contribution - After-tax*
• Investment Growth - Taxed *Dividends and interest are taxed, unrealized capital gains grow tax-free.