The Best Health Savings Accounts (HSA) Providers: Fidelity and Lively/Schwab

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Updated for 2022. It’s open enrollment season, and there is better than a 50/50 chance that you will enroll in a high-deductible health plan. That means that you are also eligible to contribute to a Health Savings Account (HSA), which has triple-tax-free benefits: tax-deductible contributions, tax-free earnings growth, and tax-free withdrawals when used for qualified medical expenses (image source). This makes them better than even Traditional and Roth IRAs (image source).

Are you an HSA spender or HSA investor? As a spender, you contribute to the HSA, grab the tax-deduction, and then treat it like a piggy bank and spend it down whenever you have a qualified healthcare expense. You don’t have that annoying “use-it-or-lose-it” feature of Flexible Spending Accounts (FSA), and most offer FDIC insurance on your cash.

As an investor, you are trying to maximize the tax benefits of HSAs by contributing as much as possible, investing in growth assets like stocks, and then avoiding withdrawals until retirement. If you have the financial means, you would max out the contribution limits ($3,850 for individual and $7,300 for family coverage in 2022, slightly more if age 55+) and then pay for your healthcare expenses out-of-pocket instead of withdrawing from the HSA. You should keep a “forever” digital PDF copy of all your healthcare expenses. Technically, you can still withdraw the amounts of all those expenses tax-free at any time in the future, even decades later.

You can pick your own HSA provider, and some are much worse than others! Morningstar has updated their 2022 Health Savings Account landscape report (e-mail required). After reading through the entire thing, my take is that you really only need to consider the two best HSA plans: Fidelity HSA and Lively HSA.

Similar to IRAs, you don’t need to use the default provider that your employer recommends. As long as you are covered by an HSA-eligible health plan on the first of the month, you can open an account with any provider. From the Lively site:

My health insurance or employer is offering an HSA. Do I need to go with the option they provide?

No. Because an HSA is an individual account, you are free to choose whichever HSA provider you want to work with (e.g., Lively).

Source: “Publication 969 (2018), Health Savings Accounts and Other Tax-Favored Health Plans.”

In addition, you can transfer the balance in an existing HSA to another HSA provider at any time, even if no longer covered by an HSA-eligible health plan.

Fidelity and Lively HSA for spenders. Both have the least fees and a safe place for your cash. Others HSAs have maintenance fees, minimum balance requirements, and more “annoyance” fees.

  • No minimum balances.
  • No maintenance fees.
  • No paper statement fees.
  • No account closing fee.
  • FDIC-insured cash balances.

Fidelity offers the best potential interest rate on cash via the Fidelity® Government Cash Reserves money market fund (FDRXX) as a core position, which currently pays more than their FDIC cash sweep option. Note that this money market fund is very conservative but is not FDIC-insured.

Fidelity and Lively HSA for investors. Both feature a low-cost way to invest your contributions for long-term growth:

  • No minimum balance required in spending account in order to invest.
  • Offers access to all core asset classes.
  • Offers free self-directed access to ETFs, individual stocks, bonds, and mutual funds.
  • Offers “guided portfolios” for automated investing.

Fidelity quietly offers the institutional shares of their Fidelity Freedom Index “target date” mutual fund line-up with a very low expense ratio of ~0.08%. It’s a bit confusing as you must choose the self-directed “Fidelity HSA” option to access this auto-pilot fund. The self-directed option has no annual fee and also includes access to ETFs, individual stocks, bonds, and mutual funds. Be aware that the Fidelity HSA sign-up page may try to steer you towards the different “Fidelity Go HSA” for guided investing, but that robo-advisor charges an annual advisory fee of 0.35% per year for balances of $25,000 and above (no advisory fee while your balance is under $25,000).

Lively also has similar “guided portfolio” robo-advisor option that charges a 0.50% annual advisory fee. Morningstar dinged Lively for this, but Lively also offers a self-directed brokerage window with Schwab. That means you can invest in any ETF with zero commissions at Schwab including building your own DIY portfolio using index ETFs, mutual funds, individuals stocks, or individual bonds. (Previously TD Ameritrade, but Schwab bought TD Ameritrade.) The Schwab brokerage option has no annual fee with a $3,000 minimum balance, otherwise if you are under $3,000 it costs $24 a year. If you already have your own financial advisor connected to Schwab, you can allow them to manage your HSA as well.

A simple Vanguard ETF portfolio might be 50% US Stocks (VTI), 30% International Stocks (VXUS), 20% US Bonds (BND). The total weighted expense ratio of such a portfolio would be less than 0.05% annually and fully customizable for the DIY investor. Both accounts can cost basically nothing above the expense ratio of the cheapest ETFs you can find – you really can’t ask for more than that!

Fidelity and Lively have the least amount of extra and/or hidden fees:

How do Fidelity and Lively make money then? Your employer has to pay a fee to HSA providers. It’s still much cheaper for them than your old full-price health insurance premium, of course.

Bottom line. Both Fidelity HSA and Lively HSA are excellent options for your Health Savings Account funds. If you want auto-pilot investing, the cheapest option is the Fidelity Freedom Index Institutional shares. Alternatively, Lively is an independent HSA provider with a modern feel and a good history of customer-friendly fee practices and service. DIY investors can use the Lively/Schwab brokerage window to invest in a mix of Vanguard or other index ETFs.

(Disclosures: I am not an affiliate of Fidelity, although I would if they had such a program. I am an affiliate of Lively and may receive a commission if you open an account through my link. Thanks for your support of this site.)

My Money Blog has partnered with CardRatings and Credit-Land for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

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Comments

  1. Excellent timing! We’re ditching our HDHP now but I was researching the HSA companies to transfer into and Fidelity and Lively were at the top of the list for exactly these reasons. I didn’t love the investing options at Lively quite as much, I prefer to stay invested consistently across our products but for someone who doesn’t have a particular fund in mind, Lively does look just as good as Fidelity.

  2. I rather like Health Equity, they have 23 Vanguard funds to choose from, and their fees are 0.3% debited monthly with a limit of $10/month. They’re definitely more transparent than my 401k about their fees. The interface for investing is a bit clunky but overall I’ve been satisfied with them over the years.

    • $10 per month might be worth it if you are happy with them. I am with them and want to switch to Fidelity because I like free. Might be hardly worth it though.

  3. All in on Fidelity. No annoying fees, invest in whatever you want. Can even get approved to trade options and all tax free.

  4. How do you get these options within your HSA? I thought your only options were the ones chosen by your employer? At my employer, I only have (or see) TD Ameritrade as an option. Can I just go out and get another one on my own?

    • From the Lively site:

      My health insurance or employer is offering an HSA. Do I need to go with the option they provide?

      No. Because an HSA is an individual account, you are free to choose whichever HSA provider you want to work with (e.g., Lively).

      Source: “Publication 969 (2018), Health Savings Accounts and Other Tax-Favored Health Plans.”

    • You can also do a rollover (trustee-to-trustee transfer) of your existing HSA funds into another HSA provider. HSA funds are “your property” and thus portable similar to an IRA.

      • My employer contributes certain amount every year. If I decide to go with HSA provider of my choice, does it mean I will have to do a rollover every year? or my employer should be contributing to the HSA of my choice? Thanks

      • Hi Jonathan – Are we allowed to do only one rollover per year (365 days) or if it’s Trustee-To-Trustee, without having the check cut in my name), can we do several (say every 6 months – say every $1000, it accumulates) rollovers per year. I only see info about rolling over to your name and deposit and I don’t see much info on direct rollover (trustee to trustee). I believe it should be the same as other IRAs for this HSA as well, but appreciate your confirmation, in case of direct rollover count per year (if any) is allowed. Thanks.

  5. Contributing using employer plan will reduce FICA tax liability.

    Some states don’t recognize HSA, and profits are still taxed as a taxable account: “Interest or other earnings earned from a Health Savings Account (HSA) are not treated as taxed deferred. Interest or earnings in a HSA are taxable in the year earned.”
    HSA will not issue 1099, so extra record keeping is necessary.

  6. Rolling it all over to fidelity. Simple to open.

  7. Can I contribute to my Fidelity HSA in 2022 for a 2021 contribution (like IRA’s)?

  8. Richard Sharon says

    Jonathan, Do you know if we need to do any reporting for this Trustee to Trustee transfer of HSA funds, while doing taxes for that year.
    I don’t see any forms for the transfer I did (it was direct between the trustee’s without me being involved). Can you or anyone confirm.

    Thanks
    Richard

  9. Using employer plan with payroll deduction also saves SS and medicare taxes – option not available otherwise.

    • That is a very good point, you should definitely contribute via pre-tax payroll initially if you are restricted to a certain HSA provider. However, you can later do partial transfers of assets to another provider. Note that some HSAs charge transfer fees (that’s one of the hidden fees that Fidelity and Lively don’t charge).

  10. If married and holding more than a year, why not just invest in a taxable acct? You can withdraw tax free up to 90k a year,after a year. It’s not tax deductible, but you can use the money for whatever you want, anytime, after a year. Seems like a better deal than HSA with minor downsides, more upsides.

  11. Within Fidelity HSA can the funds be invested into their zero fee funds such as FXROX or FNILX

    Also, for the cash you mention FDRXX. What about SPAXX or FZFXX, are those an option? Or does it even make a difference?

    Thank you as always. Great article. My employer’s default HSA is Payflex and I’m not a fan

  12. How are we able to escape paying taxes after holding for one year? Isn’t tax liability based on adjusted gross income?

    • 0% LTCG — which the majority qualify for. Not sure why anyone would use HSA, except for a small percentage of those that don’t fit in this specific situation.

  13. When did Schwab rebrand the TD Ameritrade HSAs? I still have a TDA HSA but it’s through HSA Bank, not Lively.

  14. Fidelity is fantastic. I’m so grateful to them because for close to a decade, there were no investment options for hsa accounts. Zero. Nil. You opened the account with a bank and hoped for the best at a time when interest rates were hideously low. Anthem and Optum kind of jumped in later, but the options and fees are hideous.
    Finally feel like I can do something with my HSA. Too bad I can’t make up for decade plus of lost investing time. Now my goal is 300k generating enough to pay deductibles. But with what I was saving, could have been a million if I had the opportunity to invest.

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