I have an HSA through my employer, of which I put a certain percentage of my salary towards.

The "goal" of the HSA (as I understand it) is to have a lifetime plan to support your healthcare.

Looking through the fine print, the interest offered on the funds that I add is a paltry 0.008% (yes, less than a 100th of 1 percent).

Given such a low interest rate, is it not to my advantage to put this money instead into an account earning something higher and still low risk, such as 3% to 6%, and still liquid enough to draw in a medical emergency?

(I'm in the USA)

  • Isn't an HSA contribution tax deductible which can be included as a benefit and a "return on investment". You also have easy access to it versus an investment which might have the money tied up somewhere. (USA Assumed) Jan 19, 2018 at 17:20
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    I also have an HDHP/HSA through my employer. The way ours is set up (and may be universal, I don't know), is that any amount you have over $2,000 can be invested in any of the funds offered by the plan. But the first $2,000 must be kept in a cash account earning a penance in interest. It may be worth checking if your investment options open up once you reach a similar threshold.
    – PGnome
    Jan 19, 2018 at 19:23
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    While there are certainly some people for whom HSA makes economic sense (people who know or can expect they will have large healthcare expenses in the near future, and who have incomes high enough that shielding the money from taxes makes a significant difference), the raison d'etre for HSAs is as political propaganda for a particular theory of individual responsibility/self-sufficiency that does not hold up to any degree of scrutiny when applied to healthcare. Jan 20, 2018 at 2:10

3 Answers 3


The HSA for most people, is a way to take pretax money and be able to use it for healthcare. No 7.5%/10% floor or need to itemize taxes in any way. It’s available based on the health plan you have, and a benefit for those who can set aside a bit of money to avoid tax.

If you have zero $ out of pocket, and you plan offers no investment option, your point is valid. Post tax money would likely grow and eventually exceed the value of that pretax acct making zero interest.

Keep in mind, most HSA users are using the acct to make their out of pocket expense each year pretax. Others have access to an offering of funds that are long term investments. And the HSA becomes a partner to the retirement accounts, earmarked for future healthcare costs.

TL:DR - If your plan offers no real long term investments, and you are not likely to use the money each year, the HSA value is diminished greatly.

  • So, pre-tax HSA contributions do not count towards the new standard deduction limit?
    – binarymax
    Jan 19, 2018 at 17:36
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    @binarymax. No they don't count towards itemizing deductions. Your contributions are free of taxes and social security taxes. Also check to see if your plan has investment options. Jan 19, 2018 at 17:42
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    Thanks for the answer and advice - I'll check for plan investment options, didn't know that was possible!
    – binarymax
    Jan 19, 2018 at 18:01
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    HSA can also be used as a long-term savings vehicle. Normally, unless you have qualified medical expenses, you can't take money out of an HSA without a 20% penalty. However, per the current tax law after age 65 you can withdraw from an HSA for anything, medical or otherwise. Jan 19, 2018 at 21:17

Ditto JoeTaxpayer, let me just say it a little differently that may help clarify:

The primary reason to use an HSA is that money you put in the HSA is not taxable, so you can, in effect, pay your medical expenses using tax-free dollars. I had a period when I had some relatively large medical expenses when I pretty much just, when I got a medical bill, I deposited enough money to the HSA to cover it, and then I paid it from the HSA. But most people make regular contributions to an HSA so that they can spread out their medical expenses. Put in a couple of hundred a month or whatever you can manage. Some people stop contributing when it reaches an amount equal to the deductible on their insurance. When HSAs were first invented, the way it was explained to me was, Your deductible is $2000 (or whatever the number was, I forget). So build your HSA up to $2000. Then if you have medical expenses, pay them out of the HSA until you've met the deductible.

SOME HSAs have investment options so that money sitting in there is earning returns comparable to investing in the stock market. In that case you can use the HSA as a retirement account. This is particularly useful if you are maxing out your contributions to your IRA or 401k.


I’ll share my own situation.

My family usually has more in medical expenses each year than the HSA contribution maximum limit. As a result, each year we contribute the maximum allowed to the HSA and then withdraw it to pay medical expenses, essentially emptying the HSA each year. The interest rate of the account is irrelevant, because the money doesn’t sit there long enough to earn anything significant. The contribution simply allows us to take a $6k+ tax deduction each year, making most of our out-of-pocket medical expenses tax-free.

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