Daniel Stewart

Can I Collect Interest on My HSA?

Health savings accounts (HSAs) are an often-overlooked method of preparing for a more secure financial future. These accounts help you cover medical expenses. They have a triple-tax advantage. Not only are contributions tax-deductible, but the withdrawals you make for qualified medical expenses are tax-free. That's not all.

Investing your HSA allows you to generate substantial growth over time, and the interest earned is entirely tax-deferred. The interest is tax-free and can remain that way if you continue using it for qualified medical expenses. The only instance where the interest would be taxable is if you make withdrawals for non-qualified expenses.

How Does an HSA Earn Interest?

These accounts earn interest in a couple of different ways. The first is a method you're likely already used to seeing. At its core, an HSA is a savings account. Of course, it has many limitations. But it earns interest the same way as a traditional savings account. Simply having money in the HSA will generate interest over time.

The annual percentage yield is modest, but you can rest easy knowing that your account is growing as it sits untouched.

If you want to maximize your earnings, investing your HSA is key.

Depending on your HSA provider, you can start investing after you reach a specific value threshold. That's typically around $1,000 in contributions. However, the amount can vary from one bank to the next.

After having enough in your account, you can explore investment options. Providers often offer flexible solutions that cater to both seasoned investors and novices. Self-directed options allow you to design and optimize a portfolio that works for you. Meanwhile, a guided portfolio offers suggestions based on your goals and risk preferences.

There are many ways to approach HSA investments. Those looking to grow their HSA as quickly as possible can go for high-risk options to generate substantial interest. However, low- and moderate-risk options are available for more conservative approaches.

An HSA presents another opportunity to diversify. When invested right, these accounts can be another tool to achieve financial freedom and security.

Author Resource:-

Daniel Stewart has been helping people with their money management and personal finance with over 15 years' experience in business finance. You can find his thoughts at health investment blog.