HSA Interest Rate

[Quark]

I am new to having an HSA so maybe y'all can help me. My HSA statement says the interest rate only goes up to .3%APY. I thought it was supposed to be invested in the stock market? Why is this so low? Is this normal? It is through Bank of America.

Interest Rate
Balance                            APY
$10,000.01 and over        0.30%
$2,500.01 to $10,000.00  0.20%
$0.00 to $2,500.00          0.10%

[Kingomri]

Not all HSAs allow for you to invest HSA funds. What you can do is transfer (or roll over) your money to a different HSA that does allow it.

Some ideas of where to transfer it: http://thefinancebuff.com/best-hsa-provider-for-investing-hsa-money.html
Some details on how transfering/rolling over works practically: http://thefinancebuff.com/how-to-rollover-an-hsa-on-your-own-and-avoid-trustee-transfer-fee.html

The HSA I have through work does not allow for investments, so I actually have two HSA accounts. My payroll contributions go to my work's chosen HSA provider, and every year, I roll the balance over to my other HSA, at ELFCU, where I can transfer the money to a linked TD Ameritrade brokerage account to invest it.

Hope this helps - spend some time looking around the various articles TFB (as linked above) has written on the subject. He's pretty thorough with the how-to's on the subject.

[Louisville]

My HSA has multiple options on where to park the money. But the default option is just the savings account with .2% interest. If I want to move the money into any sort of investment fund, I have to make a point of doing that. Your HSA may have a similar set up.

Having said that, you need to have a plan for what you want to do with your HSA money.

Are you planning to spend it on medical expenses as they come up over time? In that case, you probably don't want your funds in the stock market. Too volatile for funds you may spend at any time now.

On the other hand, some people plan to use their HSA as a back door IRA, never touching the money until they're 65. Any medical expenses that come up will be covered with other funds. Those people would be wise to put their the money inside their HSA into a stock fund.

Either way, it's cool to get the tax break.

[Quark]

Thanks everyone, great advice!

One thing: regardless of whether I am going to use the HSA for medical benefits or as a backdoor IRA, almost ANYTHING, even bonds, will give me a better return than .2%!

[Louisville]

Yeah, but bonds swing up and down. What if you put your entire balance in bonds, then bond prices take a big hit, then you have a big medical bill to pay before bond prices recover?  You've just compounded the cost of your medical bill.  I'd strongly recommend keeping it in cash, even with the crappy interest rate, if you plan to use it to pay medical bills. At least until you build up a big balance. Then you can put some in investments and keep some in cash.