HSA accounts can earn interest, but most do not unless you choose an investment option

An HSA (Health Savings Account) is a bank account, and like any bank account, it can hold money that earns interest. However, the interest rate depends entirely on how your HSA provider structures the account and what you do with the funds. Many HSA accounts come with a savings option that earns little to no interest — sometimes 0.01% annually or less. Other providers let you invest HSA money in mutual funds or other securities, which can grow faster but also carry risk of loss.

The key difference from a regular savings account is that your HSA provider controls what earning options are available to you. You cannot shop around for a better interest rate the way you might with a regular bank account. You are limited to whatever your employer's plan administrator or the HSA custodian offers. Some providers offer multiple tiers: a low-interest savings portion for money you plan to spend soon, and investment options for money you want to grow over years.

Whether your HSA earns interest also depends on your account balance. Many providers waive investment fees or offer higher interest rates only if you maintain a minimum balance — often $1,000 to $2,500. Below that threshold, your money may sit in a non-interest-bearing account.

Key Takeaways

  • HSA accounts can earn interest through a savings option or investment option, but the rate depends on your provider, not on you shopping for better terms.
  • Many HSA providers offer a savings portion with minimal interest (0.01% to 0.5% annually) and a separate investment option with mutual funds or similar securities.
  • You may need to maintain a minimum balance — typically $1,000 to $2,500 — to unlock higher interest rates or investment options.
  • Interest earned in an HSA is tax-free as long as you use withdrawals for may have access to medical expenses.

How interest rates vary by HSA provider

Your HSA provider is usually your employer's benefits administrator or a custodian they contract with — companies like Fidelity, HealthEquity, Lively, or Optum. Each sets its own interest rates and investment menu. One provider might offer 0.05% on savings while another offers 0.50%. Some offer no interest at all on the base savings account but let you move money into a money market fund or short-term bond fund that earns more.

You typically cannot switch providers mid-year just because another one has a better rate. Your employer chooses the HSA custodian, and you use what they offer. However, you can roll over your HSA to a different provider when you change jobs or during an open enrollment period if your employer allows it. Before you enroll in an HSA, ask your benefits administrator what interest rate or investment options come with it. This information should be in the plan documents or on the provider's website.

Some providers also charge monthly maintenance fees ($2 to $5) or investment fees (0.25% to 1% of assets under management). These fees can eat into any interest you earn, especially on smaller balances. A few providers waive fees if you maintain a minimum balance or set up direct deposit from your paycheck.

Savings accounts versus investment options within an HSA

Most HSA providers split the account into two parts: a savings portion and an investment portion. The savings portion is like a regular bank savings account — your money is safe, earns a small interest rate (or none), and you can withdraw it anytime without penalty. The investment portion lets you buy mutual funds, index funds, or exchange-traded funds (ETFs) inside the HSA, similar to a 401(k) or IRA.

The tradeoff is straightforward. A savings account earns 0.01% to 0.50% annually but carries no risk. An investment account can earn 5% to 10% or more over time (based on historical stock market returns), but the value can also drop in a market downturn. You might lose money in the short term. Many people keep money they plan to spend within the next year or two in the savings portion, and move money they will not touch for five or more years into investments.

You control how much goes into each portion. If your HSA provider allows it, you can move money between savings and investments as often as you want, usually with no fee or a small transaction fee. Some providers let you set up automatic transfers — for example, moving any balance over $2,000 into a money market fund each month.

Tax treatment of interest and investment gains in an HSA

Interest earned in an HSA is tax-free. You do not pay federal income tax on it, and in most states you do not pay state income tax on it either. This is one of the biggest advantages of an HSA over a regular savings account. If you earn $100 in interest in a regular savings account, you owe tax on that $100. If you earn $100 in interest in an HSA, you owe nothing — as long as you eventually use the HSA money for may have access to medical expenses.

The same rule applies to investment gains. If you buy a mutual fund inside your HSA and it grows by $500, that $500 is not taxed when you sell the fund. You only owe tax if you withdraw money from the HSA for something that is not a may have access to medical expense. In that case, you pay income tax on the withdrawal plus a 20% penalty (or 15% if you are age 65 or older).

This tax-free growth is why some people treat an HSA like a retirement account. They contribute the maximum allowed each year, invest the money, and let it grow for decades. As long as they eventually use it for medical expenses — which nearly everyone does in retirement — all the growth is tax-free. If they die, their beneficiary inherits the HSA and can continue using it tax-free for medical expenses.

How to find out what your HSA earns

Log into your HSA account online or call the customer service number on your HSA card. Look for a section labeled "Account Details," "Interest Rate," "Rates and Fees," or "Investment Options." The provider should clearly state what interest rate your savings portion earns and what investment options are available.

You can also ask your employer's benefits department or HR office. They can tell you which HSA provider manages your account and direct you to the right website or phone number. Many employers also send out annual statements showing how much interest or investment gains you earned that year — this appears on the same tax form (Form 5498-SA) that reports your HSA contributions.

If your current HSA earns very little interest and charges high fees, you have options. When you change jobs, you can roll your HSA to a new provider with better rates. Some employers also allow mid-year switches during open enrollment. You can also open a separate HSA with a different provider if your current one allows it, though this is less common and may trigger coordination-of-benefits issues. Check with your plan administrator before attempting this.

Common mistakes that reduce HSA earnings

The biggest mistake is leaving money in a non-interest-bearing account when your provider offers a savings option that earns interest. Some people never log in to their HSA after opening it, so they never move their balance to the savings portion or investment options. Their money just sits idle. Check your account at least once a year to see where your balance is held and whether you can move it somewhere it will earn more.

Another mistake is keeping too much in savings when you could invest it. If you have $10,000 in your HSA and you know you will not need it for five years, keeping it in a 0.05% savings account means you earn about $2.50 per year. Moving it to a diversified index fund could earn $500 to $1,000 per year on average, though with some year-to-year variation. The longer your time horizon, the more sense it makes to invest.

A third mistake is not understanding your provider's fee structure. Some HSAs charge a monthly fee even if your balance is zero. Others charge per transaction or per investment trade. If you plan to move money between accounts frequently, these fees add up. Read the fee schedule before you enroll, or ask your benefits department to explain it.

Frequently Asked Questions

Can I move my HSA to a different provider to get a better interest rate?

You can roll your HSA to a different provider, but timing matters. Most people can do this when they change jobs or during their employer's open enrollment period. Some providers allow mid-year rollovers. Contact your current HSA provider to ask about their rollover process, and confirm with your new provider that they accept incoming rollovers. The process usually takes two to four weeks.

What happens to HSA interest if I use the money for a non-medical expense?

If you withdraw HSA money for something that is not a may have access to medical expense, you owe income tax on the entire withdrawal — including the interest or investment gains — plus a 20% penalty. For example, if you withdraw $1,000 and $100 of it is interest, you pay income tax on $1,100 plus a $220 penalty. After age 65, the penalty drops to 15%, but the income tax still applies.

Do I have to invest my HSA money, or can I leave it in savings?

You can leave it in savings if you want. There is no requirement to invest. Many people keep their HSA in a savings account because they use it to pay medical bills throughout the year. If you have extra money that you will not need soon, moving some to an investment option can help it grow, but it is entirely your choice.

How much interest do HSA accounts typically earn?

Savings portions typically earn 0.01% to 0.50% annually, though rates vary by provider and change over time. Investment options have no set rate — they earn whatever the underlying funds earn, which can range from negative returns in down years to 10% or more in strong years. Check your specific provider's current rates on their website.

Is HSA interest reported on my taxes?

Yes. Your HSA provider sends you a Form 5498-SA each January showing contributions, distributions, and interest earned during the previous year. You do not owe tax on the interest as long as you use the HSA for may have access to medical expenses. If you withdraw money for non-medical reasons, you report the interest as taxable income on your tax return.