We tried it: Opening (and investing in) a Health Savings account / 89
We’ve said it before, but sometimes the hardest part of a financial task is opening the account.
Cassidy put off opening her HSA for almost a year because it felt like something that would require research, decisions, and a decent chunk of her day. When she finally sat down to do it, she timed herself.
Eight minutes. That was it. 😅
So, if an HSA has been sitting somewhere on your financial to-do list, this episode is for you. We’re walking through what we actually did to open, fund, and invest ours — including the choices we made about investments, cash, and paying medical expenses.
Episode highlights
[00:00] Why HSAs can be so powerful — and why investing the money is worth considering
[03:30] How we chose where to open an HSA and set up contributions
[06:30] A real-life look at our HSA investments (and realizing we may have some adjustments to make!)
[09:00] Putting off opening an HSA for almost a year — only to get it done in 8 minutes
[11:30] Funding and investing an HSA, including how much to keep available in cash
[13:30] Using your deductible as a guide for deciding how much HSA money to keep in cash
[15:00] Therapy, menstrual products, and other expenses that may qualify for HSA funds
First things first: Why invest an HSA?
HSAs are valuable accounts. If you're eligible to contribute to one, you can earn significant tax benefits: you can contribute tax-free money, the money can grow tax-free, and withdrawals for qualified medical expenses can be tax-free.
But here's the part that’s easy to miss: You can also invest the money inside your HSA.
You can keep your HSA in cash to cover medical expenses, invest some and keep some available, or invest most of it and pay current medical expenses out of pocket.
Emily and her husband take that last approach. They keep about $500 in cash, invest the rest, and generally pay medical bills out of pocket. Because there generally isn't a deadline to reimburse yourself for qualified expenses incurred after opening your HSA, they can save their receipts and potentially reimburse themselves years later.
The benefit? Their HSA money gets more time to potentially grow before they use it.
That doesn't mean investing your HSA is always the better choice, though. If paying medical expenses out of pocket would strain your budget, using your HSA now may make more sense.
The extremely unscientific way we chose an HSA provider
When Emily and her husband decided to open an HSA, they did some research and landed on Fidelity.
This was not a months-long comparison of every provider, fee structure, and investment option on the internet. They already used Vanguard for other investments, but Vanguard doesn’t offer HSAs. Fidelity kept coming up as a solid option, so they decided: This seems good. Let’s go with it.
Sometimes that really can be enough.
Cassidy’s process was even simpler. She knew Emily liked Fidelity, so when it was finally time to open her own HSA, she went with Fidelity too.
Research complete. 😂
The bigger challenge for Cassidy wasn’t choosing where to open the account. It was actually opening it.
She had specifically chosen an HSA-eligible high-deductible health plan through the marketplace because she wanted access to an HSA — and then proceeded to put off opening one for almost a year. In her head, it had become one of those financial tasks that would require a bunch of time and mental energy.
When she finally sat down to do it, she entered her information, connected her bank account, and funded the HSA.
The entire process took eight minutes.
After months of procrastinating, she basically had to laugh at herself. The task she’d built up in her head was… not much of a task at all.
And that’s probably the more useful takeaway here than which provider either of us chose: Not every financial decision needs exhaustive research before you’re allowed to move forward. Sometimes finding an option that meets your needs and getting started is enough.
Okay, the account is open. Now what do you invest in?
Opening and funding an HSA is only part of the process. If you want that money invested, you also have to actually choose investments.
Emily and Cassidy both invest the majority of their HSA balances. Emily’s HSA is mostly invested in a Fidelity total stock market index fund, with a small amount in a target-date fund. (When she logged in before recording this episode, she realized that combination made no sense — this was a real-time reminder that it’s worth checking in on your accounts occasionally and making sure your investments still match your strategy.)
Cassidy kept things especially simple when she opened hers. She contributed $4,400, left $1,000 in cash, and invested the remaining $3,400 in VOO, Vanguard’s ETF that tracks the S&P 500.
Neither of those examples is a recommendation for what you should buy. What you invest in — and how much you invest at all — depends on your timeline, risk tolerance, other investments, and how soon you might need the money for medical expenses.
But there is one easy-to-miss step here: Funding an HSA does not necessarily mean that money is invested. If investing is your goal, make sure you’ve gone the extra step of choosing your investments.
How much should you actually keep in cash?
There isn't one magic number here, and our own accounts are a pretty good example of why.
Emily and her husband keep about $500 in cash because they currently intend to pay medical expenses out of pocket.
Cassidy keeps $1,000 in cash because her income fluctuates.
In a higher-income month, she might be perfectly comfortable paying a medical expense from her regular cash flow. But if a big medical bill arrives during a slower month, she doesn't necessarily want to pull from her emergency fund just so she can preserve every dollar in her HSA.
That $1,000 gives her another option.
And this is an area where Cassidy's strategy has changed a lot over time.
About a decade ago, she had an HSA through an employer. At the time, she didn't have much discretionary income, so she used that HSA for current medical expenses.
Needed Tylenol? HSA card.
Urgent care visit? HSA card.
If using the HSA meant she could get the healthcare she needed without worrying about where the money would come from, that was the valuable part of the account.
Today, she's in a financial position where she can more often pay medical expenses out of pocket and leave the HSA invested.
Neither version of Cassidy was doing it “wrong.” Her financial circumstances changed, so the way she used the account changed too.
One guideline Emily has heard is to eventually keep enough cash in your HSA to cover your health insurance deductible and invest anything beyond that.
That way, if you have an expensive medical year, there's money available before insurance kicks in.
Of course, with a high-deductible health plan, that can be a pretty substantial amount of cash. You don't need to immediately hit that number before you're “allowed” to invest.
Think of it as one possible framework, not another financial rule you have to perfectly follow.
Your HSA may cover more than you realize
One of the perks of an HSA is that the list of qualified medical expenses is broader than you might assume.
Cassidy, for example, has been having her therapy billed through her health insurance. Those costs have been counting toward her deductible, which has helped her get surprisingly close to meeting it for the year.
Some therapy expenses may also qualify for HSA funds, depending on the circumstances.
And then there are expenses that don't necessarily scream “medical bill” when you're standing in the checkout line.
Menstrual care products like pads and tampons, for example, can qualify. Certain over-the-counter medications can too.
Rather than trying to memorize every eligible expense, check before you pay. The IRS maintains guidance on qualified medical expenses, and your HSA provider may offer additional information.
The broader takeaway from this whole conversation is that your HSA strategy does not have to look exactly like someone else's — or even like your own strategy five years ago.
Maybe right now, your HSA helps make healthcare affordable.
Maybe you can keep a little cash available and invest the rest.
Maybe you're able to pay expenses out of pocket and leave most of the account invested for the future.
The useful strategy is the one that works with your actual life.
And if the only thing standing between you and opening an HSA is the assumption that it's going to be a whole ordeal?
Maybe set a timer. You might be eight minutes away from crossing it off your list. ✨
Resources
TL;DR
An HSA doesn't have to stay in cash. Depending on your provider, you may be able to invest some of the money for longer-term growth.
How much you keep in cash depends on your cash flow, medical needs, deductible, and whether you plan to use the HSA for expenses today.
Paying medical bills out of pocket can give invested HSA money more time to potentially grow, but using HSA funds now can also make complete sense.
Your HSA strategy can change as your financial circumstances change.
And if opening the account is the part you've been avoiding, it may be way easier than your brain has made it out to be.
The Finance Girlies content is for educational purposes only and is not personalized financial, tax, or legal advice.
