This year marks the 20th anniversary of Health Savings Accounts (HSAs). Signed into law by President George W. Bush in 2004, HSAs offer a tax-advantaged way for individuals to save for current and future healthcare costs. To qualify for an HSA, account holders must have a High Deductible Health Plan (HDHP) as their primary insurance.
For many, the true benefit of an HSA is its triple tax advantage, offering tax-deductible contributions, tax-free growth and tax-free withdrawals (for qualified medical expenses), according to the IRS. That combination is powerful for savers; contributors can reduce taxable income while enjoying tax-free growth on interest, dividends and capital gains. And, with no deadline for spending, the funds in HSAs can roll over for years — including into retirement.
Historically, savers accessed HSAs through employers. However, the landscape is evolving: Now, more banks offer HSAs, reaching individuals who don’t have access through work, are self-employed or are in the gig economy and want more options for their healthcare savings. Approximately 11% of HSA dollars contributed in 2023 came from individuals not associated with an employer, according to Devenir Research’s September 2023 Midyear HSA Market Statistics & Trends Executive Summary.
Which Banks Offer Health Savings Accounts?
The number of HSA accounts has been steadily increasing over the last decade, with assets projected to exceed $150 billion in 43 million accounts by the end of 2025, according to the ABA Banking Journal. This growth indicates rising demand for HSAs, leading to more banks providing these accounts to cater to individuals seeking tax-advantaged ways to save for healthcare expenses.
Here’s an overview of some of the banks currently offering HSAs:
Lively HSA: Lively offers a no-fee HSA with options for self-directed investing through Schwab and Devenir-managed funds.
- No setup and monthly maintenance fees.
- Self-directed brokerage option with Schwab; no added fees for balances over $3,000.
- Devenir-managed funds have an annual management fee.
Fidelity HSA: Fidelity provides an HSA with no fees for most accounts and various self-directed and managed fund options.
- No setup and monthly maintenance fees.
- Wide array of investment options with commission-free online trading for U.S. stocks.
- Managed portfolio option with a low fee structure for balances over $25,000.
UMB Bank HSA: UMB Bank offers a flexible Health Savings Account solution with multiple investment options to maximize healthcare dollars.
- Comprehensive health savings and investment solutions.
- No minimum balance required to start investing.
- Access to online tools for managing health care expenses.
HSA Bank: HSA Bank provides a Health Savings Account that offers extensive resources for saving, planning and paying for health care.
- Wide range of investment options.
- No minimum account balance required.
- Offers both guided and individual investment options.
Bank of America HSA: Bank of America’s HSA is designed to help individuals save for qualified medical expenses.
- Investment options available to account holders with a balance over a certain threshold.
- Online and mobile banking tools for easy account management.
- Potential for growth through investing.
Why Should Banks Offer HSAs?
As more banks offer HSAs, it’s another way to align with consumers’ needs and interests while opening an additional source of revenue. Banks can charge monthly fees for HSA-related services and earn interest on customers’ HSA balances held in deposits, potentially boosting revenue in a higher interest rate environment.
Another factor to consider is changing trends. A recent Schwab 401k study indicates younger professionals, Millennials and Gen Z, want to broaden their retirement investment and savings choices and HSAs provide a path to do that, both through employers and on their own. Appealing to these consumers, who often struggle to trust traditional banks and look to digital-first options, provides an opportunity.Banks can attract younger customers looking for more comprehensive financial and health savings solutions in one place — a potential competitive advantage, especially for those with established high-quality digital and mobile user experiences.
“Younger generations continue to embrace HSAs, including Millennials, who make up more than one-third of the current workforce at 39.4%,” Brian Hutchin, EVP/Director of National Healthcare Services Sales & Strategy at UMB Bank, tells The Financial Brand. “These consumers are not just saving to their HSA but also taking advantage of the investing options. The Employee Benefit Research Institute’s (EBRI) analysis shows that younger generations are power users of HSAs, with Millennials and Gen Z representing 60% of all investment accounts.”
“Younger generations continue to embrace HSAs, including Millennials, who make up more than one-third of the current workforce at 39.4%,”
— Brian Hutchin, UMB Bank
Education is one pathway for banks to highlight a customer-focused value proposition and connect with consumers interested in expanding their banking while improving loyalty and retention. Offering HSAs allows banks to provide financial resources and guidance on health savings and long-term planning, strengthening customer relationships and opening the potential to cross-sell other products and services. Banks can also emphasize convenience and accessibility through online and mobile banking features, a strategic differentiation tool to attract these younger customers.
“It’s critical they understand how to maximize HSAs for short- and long-term goals,” Hutchin says. “When it comes to getting the most out of an HSA, the account holder’s young age paired with the ability to start saving early are great assets.”
Read more about financial education trends:
- The Top 5 Impacts of Debt and What Banks Should Do About It
- Should Banks Ramp Up Budgeting Tools After the Demise of Mint?
- Why Financial Trauma is More than Just a Buzzword for Banks
The Potential Challenges Behind HSAs
For banks considering HSAs, several important factors come into play from an operational and compliance perspective.
Most banks partner with a third-party administrator (TPA), who handles much of the functional, compliance and even customer-facing aspects, offloading some of the complexity. Larger banks with significant resources can build HSA capabilities internally. However, these banks still likely need in-house expertise on technological infrastructure and tax and compliance, not to mention ensuring a user-friendly customer experience.
Two other regulatory and legislative factors are currently at play in the HSA landscape. In late 2023, proposed changes to the HSA Modernization Act, which boosts contribution limits and the HSA Improvement Act, which increases individuals eligible for HSAs, passed committee approval and are cleared for consideration by the House of Representatives. For banks, increasing contribution limits and qualified individuals, including those in retirement or on catastrophic plans, opens the door to new potential customers.
More recently, the American Bankers Association’s HSA Council has sent a comment to the Department of Labor asking HSAs to be excluded from new fiduciary duties regulations on the basis that HSAs are fundamentally different from retirement accounts. The ABA’s concern is that classifying HSA providers as fiduciaries could increase compliance costs for banks and custodians, leading to fewer options for consumers and undermining the purpose of HSAs as accessible and affordable tools for managing healthcare costs.
The Bottom Line
There’s growing interest in HSAs among consumers looking for a flexible, tax-advantaged savings vehicle to help pay for healthcare costs, signaling continued expansion of this market. However, although banks can play a crucial role in driving adoption, legislative changes and regulatory developments present both opportunities and challenges ahead.
Banks considering HSAs should continue to watch these developments play out while gauging interest in engaging with the new potential customers these changes could bring.
Liz Froment is a financial services writer based in Boston. She specializes in banking, lending and wealth management with an interest in technology. Her work has appeared in Business Insider and The Motley Fool, among others.