Investment & Health Savings Account

Health savings accounts are intended to make ordinary consumers smarter about their health care choices and more cost conscious about the services they are offered. With a health savings account, or HSA, consumers can put money aside on a pre-tax basis and spend those funds as they see fit on their health care expenses. And unlike a flexible spending account, the money invested in a health savings account does not expire at the end of the year. This rollover option allows consumers to use an HSA as an investment vehicle as well as a savings account.

Health Care Spending

• While it might be a good idea to invest your HSA funds in mutual funds and similar investments, the primary purpose of the fund should be to pay for your health care costs. If you invest your entire HSA in the stock market, you risk having to pull the money out at a loss when you need to pay for your health care costs. Before you invest your HSA in any investment that can potentially lose money it is important to separate out the funds you expect to use within the next several years. Invest those funds in a safe instrument like a savings account, and use the remainder of your money to invest in your favorite mutual fund.

Choosing an Administrator

• If you plan to open an HSA, you can choose a number of different administrators. The administrator you choose will depend in part on the types of investments you plan to use, as well as the costs you will incur with each administrator. Some banks and mutual fund companies charge an administrative fee for their HSA funds, while others offer HSA administration services at no charge.

Investment Options

• Depending on the administrator you choose for your HSA, you might have a small number of options, or a wide universe of investment choices. Before you choose your HSA administrator it is a good idea to evaluate the investment choices you will have with each potential administrator. You can, for instance, choose a mutual fund company to administer your HSA, and that can give you access to hundreds of different mutual funds. You can also choose a bank to administer your HSA and gain access to certificates of deposit, savings accounts and other conservative investments.

Track Your Performance

• If you do decide to put your HSA funds into mutual funds and similar investments, it is a good idea to track your performance carefully. Once you start investing your HSA in the stock and bond market, those funds become part of your investment portfolio as well as part of your health care fund. If you find that the mutual funds you chose are under performing the market as a whole, it might be time to choose a more suitable fund for future HSA investments.