Health savings accounts, or HSAs, have been infected with the investing bug. And that's a healthy development for Americans who will need to pay for rising health care costs in the future.
Indeed, more Americans with a health savings account now view these triple-tax-advantaged accounts designed to pay for medical expenses as the health care equivalent of the 401(k) plan.
Sure, most people with high-deductible health plans (HDHPs) still use the money they contribute to HSAs to pay out-of-pocket medical expenses and doctor co-pays during the year. But an emerging trend is gaining traction: More HSA account holders are investing part of their HSA deposits for the long term.
More HSA dollars are being invested in assets with growth potential, such as diversified stock mutual funds. At the end of June, there were 38 million HSA accounts with assets totaling $137 billion, up 18% year over year, according to Devenir Research's midyear survey. And $56.2 billion, or 41% of those dollars, were invested. Ten years ago, just 14% of HSA assets were invested.
Still, just 9% of HSA accounts had at least a portion of their HSA dollars invested, a low total that HSA experts say amounts to a missed opportunity for account holders.
Bull Run Drives Health Savings Account Asset Gains
Thanks to the bull market on Wall Street and sharp rise in stock prices, invested HSA assets jumped 39% in the 12 months ended June 30, according to Devenir.
"The light bulb went on; the gotcha moment for people is the investment component of HSAs," said Eric Remjeske, president and founder of Devenir Research. "People are starting to invest and they're seeing some of that growth in their accounts."
A Morgan Stanley blog post dubs HSAs "an overlooked retirement savings vehicle."
No doubt, HSAs, which are only available to people enrolled in high-deductible health plans, are a powerful savings and investment vehicle.
The reason? Health savings accounts offer a trio of tax breaks. Any money contributed to HSAs goes in tax-free. Any interest and gains that account holders earn also can grow tax-free. And withdrawals are tax-free, too, if used for qualified health care expenses.
"There is no better tax-efficient vehicle than the HSA," said Roy Ramthun, founder and president of HSA Consulting Services.
Karen Volo, senior VP and head of health and benefit accounts at Fidelity Investments, the nation's second-largest HSA provider with $24 billion in assets, says there are three types of HSA customers: spenders, savers and investors. Currently, seven out of 10 of Fidelity's 3.5 million HSA account holders spend a portion of their HSA account balances, Volo says.
Fidelity again takes top honors in IBD's 2025 list of the best HSAs, winning category awards for Widest Investment Options, Low Fees, Best Savings Rates and Zero Investment Threshold. Read about all the best HSA offerings here.
Last year, the average overall HSA withdrawal amount per account was $1,309. And, so far this year, the average transaction size, or withdrawal to pay for medical expenses, was $116, Devenir data shows.
Seeing HSAs As Long-Term Growth Opportunities
But that doesn't mean account holders aren't saving or investing any unused contributions, Volo adds.
Volo says Fidelity is educating clients to invest HSA dollars to take advantage of the long-term growth opportunities that the tax-friendly plans offer. This year, an individual can contribute up to $4,150 in an HSA and families can sock away $8,300. Catch-up contributions of $1,000 are allowed for those 55 and older. For 2025, the contribution limits increase slightly for individuals and families.
Fidelity lets clients know that there are options if they have leftover HSA dollars. Volo stresses that unlike flexible spending accounts (FSAs), any unused HSA dollars are not lost, but instead can be carried over into the new year and beyond.
Since there's no use-it-or-lose-it downside to HSAs, Fidelity advises clients to save or invest those unused dollars in diversified mutual funds that can appreciate over time and help defray out-of-pocket medical costs in retirement.
"We want to see people go from being spenders to savers to investors," said Volo.
Volo says the same factors that impact how people allocate assets in their 401(k)s also apply to HSA investments. That means investing in a prudent way that takes your risk tolerance and time horizon into account.
"You want to create a diversified portfolio across many asset classes and make sure you're maximizing those investments throughout your lifetime," said Volo.
Seek Opportunities In All Core Asset Classes
The best health savings accounts for investment purposes are ones that offer investment options in all core asset classes, such as stocks and bonds; charge low fees; and allow plan participants to invest immediately upon funding the account, according to Morningstar.
One strategy for funding HSA investments is to set aside, say, half of your contributions in the so-called spend basket to be used for out-of-pocket costs. You can then earmark the rest of your contributions to investment accounts, says Jon Robb, senior vice president of research and technology at Devenir. And for plan participants who can pay all their medical costs with regular cash flow, Robb recommends investing all the HSA dollars and letting the account grow over time.
"Sweep all the extra money over to the investment account," said Robb. The caveat is you need to save all your receipts. That way, when you go to reimburse yourself in the future, you have proof that payments were for medical expenses.
To be sure, HSAs aren't perfect. Often, fees and charges can offset the HSA's tax savings, according to the Consumer Financial Protection Bureau. Among those are monthly maintenance fees, extra costs for paper statements, and account closure fees. What's more, HSA providers may pay below-market interest rates on cash balances, which can reduce account balance growth.
Read Our Full Report On The Best HSAs for 2025. Plus, With Triple The Tax Benefits, HSAs Deliver For Smart Savers
What's Driving The Health Savings Account Investment Trend?
A major reason why investing HSA dollars for growth is gaining traction is that it helps address the health care funding challenge in retirement. That reflects the rising cost of health care, Volo says. Fidelity estimates that a 65-year-old who's retiring this year can expect to pay an average of $165,000 in health care and medical expenses in retirement. That's up 5% from 2023, and more than double the cost back in 2002 when Fidelity first started publishing annual health care cost estimates.
Americans must place health care into the context of their overall financial plan and financial wellness. HSAs should be a key component of a worker's overall benefits package.
HSAs are a way, for example, to meet costs expected down the road, such as coming up with $6,000 or more for your kid's braces. "You want to make sure you're planning for the future," said Volo.
More Americans Have Access to HSAs
More workers have access to high deductible health plans. That means HSAs are now available to more people. More than half (51%) of private workers had access to an HDHP in 2023, up from 33% in 2014, according to the U.S. Bureau of Labor Statistics. And the percentage of workers with access to HSA plans at companies with 500-plus workers was 56%. Workers with HDHPs can contribute to an HSA, either individually or through their employer.
The triple-tax benefits of HSAs make it an attractive complementary long-term investing option to 401(k)s, IRAs and other investment accounts. Money deposited into an HSA can compound freely, unfettered from tax drags. That means HSA balances can grow substantially over time.
Given their favorable tax treatment and the fact that many employers contribute to the worker's account, HSAs rank high among the accounts to fund first. Most financial advisors recommend first investing enough in your 401(k) to get the employer match. Then you should fund an HSA to get the additional matching contribution.
"You want to maximize all of the benefits that result in a contribution from your employer," said Volo.
Health Savings Accounts Improve Tax Efficiency
HSAs also make your overall financial portfolio more tax-efficient, adds Ramthun. The fact that withdrawals are tax-free gives you more flexibility when it comes to managing taxable income. You also avoid taking withdrawals from other accounts with less-friendly tax treatment that bumps you into a higher tax bracket.
The benefit of investing HSA money for the long haul is illustrated by the sizable account balances of HSA account holders who have been investing their contributions over lengthy periods of time.
In the first half of 2024 alone, HSA investment assets grew 21%, supported by stock market tail winds, according to Devenir. Also in that time, 34% of the $31 billion in contributions were unspent. That illustrates the potential for investing unspent money.
Start Early To Gain The Most HSA Benefits
There is also a clear correlation between account age and balance size. This shows the cumulative effect of long-term HSA ownership and contributions from investment growth. The average "investor" HSA balance is $64,912 for an account opened in 2005. That's almost triple the $23,327 average balance for "funded" HSA accounts opened the same year, Devenir data shows.
"It really illustrates how what looks like small investments over time can really become a sizable nest egg," said Robb.
Despite the $8,350 annual HSA contribution limit in 2024, 44% of account balances range between $1 and $999, Devenir says. The average account balance for all accounts (including unfunded ones) at midyear was $3,639. An unfunded account is one that has been established, but not yet received any contributions.
Personal finance pros urge those with 401(k) plans to contribute enough to get their employer match. The same can be said for health savings accounts.
