Evaluating Health Savings Accounts

The Health Savings Account (HSA) is one of the best retirement planning vehicles available, perhaps the best. It has tax advantages at every phase of the life cycle. It also helps you save for one of teh largest retirement expenses: medical care.

Morningstar recently evaluated some of the largest HSA providers. It found only one provider was compelling for both the investment and spending phases of the HSA life cycle, but most were good enough, or neutral in Morningstar’s language.

When evaluating HSAs as spending vehicles, we focused primarily on the maintenance fees charged by each plan. We also considered, to a lesser degree, the interest rates offered by their checking accounts. Interest earned on HSA deposits is rather small because of the current low-interest-rate environment. If yields rise, the interest offered may become a more important consideration.

From an investment-vehicle standpoint, we focused on HSAs’ menu of mutual funds. We considered four components when reviewing plans’ investment lineups: menu design, quality of investments, price, and performance. The first three components carry the most importance since we don’t believe that past performance is predictive of future results.