Bank on HSAs for Healthy Deposits

Experts offer advice on selecting the right bank for your health savings account

THURSDAY, Aug. 3, 2006 (HealthDay News) -- Relatively few Americans today have a health savings account or even know what one is. But analysts predict that by 2010, millions of new accounts will be opened representing billions of dollars in new deposits.

Is it any wonder that banks are flocking to the HSA business?

According to HSAfinder.com, an independent source of HSA information, 110 banks were offering HSAs as of July 1, 2005. By March 1, 2006, though, the number had swelled to 700, an increase of more than 500 percent in less than a year.

Why such stunning growth? "First and foremost, banks' clients are demanding it," said JoAnn Laing, president of Information Strategies, Inc. (ISI), the Palisades Park, N.J.-based marketing and information firm that operates HSAfinder.com. "The second reason is new deposits."

As of Dec. 31, 2005, HSAs held $1.2 billion in deposits, according to ISI survey data.

HSAs cannot be combined with existing accounts, Laing added, so any bank's move to offer this new type of savings instrument expands its total number of accounts.

And there's another attraction: Once a bank has secured a new HSA client, it can begin pitching other products, like mutual funds, CDs, money market accounts, stocks, bonds and Treasury bills.

"Most people are using their accounts to save rather than spend," explained Laing, author of The Small Business Guide to HSAs and The Consumer's Guide to Health Savings Accounts. "So, their account balances are building, and they're finding that people want to go into different things, like investment products, to get a higher return."

Health savings accounts were authorized under a federal law signed by President Bush in December 2003. These accounts were designed to help Americans put away tax-free money to pay for medical care. Contributions to an HSA may be withdrawn as needed to cover current out-of-pocket costs, including doctor and hospital bills, prescription drugs and over-the-counter medications, or carried over year-to-year to pay for future medical expenses.

Like an individual retirement account, an HSA is completely portable. Even if you move, change jobs, lose your job or change your medical coverage, the account remains in your control.

To open an HSA, you must have medical coverage through an "HSA-qualified" high deductible health plan. In general that means, for 2006, the annual deductible under your insurance policy must be at least $1,050 for self-only coverage and $2,100 for a family. Annual out-of-pocket expenses under the plan must not exceed $5,250 for an individual and $10,500 for a family.

The best place to start your HSA may depend on a number of factors. Banks, credit unions, insurance companies and other financial institutions are permitted to offer these accounts. In addition, your employer may help you set one up through a relationship it has with, say, a particular bank or health insurer.

But Gregory Golub, president and founder of Sequoia Benefits LLC, a Menlo Park, Calif.-based company that designs and manages employee benefits programs, argues that consumers should choose their own account. "Ninety-nine percent of the time, the consumer pays the fees on the health savings account, so if they're going to pay for it, they should make sure they're paying for the best deal that works best for them."

Plus, if you're not careful, a bank's administrative fees can really gobble up your investment. "If you're losing $100, $150 a year in fees, it's really going to eat away at the benefits of the program, so fees are important," he said.

Here are some other things to look for when you're starting your HSA:

  • Easy deposits. Can you or your employer deposit funds electronically -- for example, via payroll deductions?
  • Easy withdrawal. Does your bank offer a checking, debit or credit card option?
  • Attractive interest rates. Look beyond the potential return on investment products. Does your bank offer a competitive compound rate on liquid funds in your HSA?
  • Ability to check your balances. Can you do business with your bank online?

"The last thing is, I would want to make sure that the bank I put my money in is FDIC-insured," Laing noted.

And, remember, in any calendar year, consumers may make deposits to their HSA until April 15 of the following year. So, you must make sure your bank credits the deposit to the proper year, she said.

More information

For more on HSAs, visit the U.S. Treasury Department.

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