HSA Custodian

What Is an HSA Custodian?

An HSA custodian is any bank, credit union, insurance company, brokerage, or other Internal Revenue Service (IRS)-approved financial institution that offers health savings accounts (HSAs). Financial institutions that manage HSAs are also called HSA administrators. An HSA custodian or administrator holds HSA assets in a secure HSA account. In some instances, the account holder may direct how to invest the funds and may withdraw them for qualified medical expenses.

Opening an HSA Account

You can open an HSA through your employer. In this case, you might be automatically enrolled with a particular HSA custodian, with the option to switch. However, before doing so, you should ask your HR department how it would affect payroll withdrawals to fund your HSA account.

If you open an HSA on your own, you can choose the custodian. Your choice of HSA custodian is important because the interest you earn, the fees you pay, and the investment options available can have a significant impact on your HSA balance over time.

As with any financial account, you want to minimize your fees and maximize your returns. You also want to make sure your cash balances will be Federal Deposit Insurance Corporation (FDIC) insured and your investments, if any, will be Securities Investor Protection Corporation (SIPC) insured.

An HSA differs from a flexible spending account (FSA), which is an employer-sponsored account that allows employees to set aside pretax dollars to pay for eligible health care expenses.

An HSA can't be rolled over into a 401(k) or an individual retirement account.

A Closer Look at HSA Custodians

The American Academy of Family Physicians (AAFP) informs patients that the health savings accounts were created by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 to offer individuals with high-deductible health care plans (HDHP) tax-preferred treatment of the money they saved for medical expenses.

An HSA custodian makes it possible for individuals to contribute to an HSA and withdraw funds as needed to pay medical bills. Similar to a savings account, custodians pay interest on cash balances held in the HSA account. Some financial institutions let account holders invest in stocks, bonds, and funds for potentially higher rates of return on the money they don’t need to pay for medical expenses in the short term.

If you're investing in an HSA on your own, make sure you know what fees are involved, what investments you can make, and how much work you'll need to do to make changes to your account.

The Cost of HSA Custodians

HSA custodians charge fees for their services. Fee types and amounts vary by the custodian institution. Some basic, ongoing fees you might see include an annual administrative flat fee and a quarterly custodial fee calculated as a percentage of your account balance. There are also fees you can incur if you make mistakes, such as an excess contribution correction fee if your deposit exceeds the IRS annual limits for HSA accounts.

A person with single coverage can contribute up to $3,600 for 2021, while the limit for family coverage is $7,200. However, a person who is 55 or older at any time in 2021 is eligible to contribute an extra $1,000.

There may also be fees to issue additional debit cards to family members or to replace lost or stolen debit cards. HSA custodians also charge many of the same fees that checking accounts charge, such as insufficient funds fees, account closure fees, and stop payment fees.

Real-World Example of HSA Account Benefits

Individuals may use their HSAs to lower their monthly premiums. Let's say someone currently has a low $2,000 deductible for their family coverage. In this case, the monthly premiums may be a rather costly $800. However, if that monthly deductible spikes to $5,000, then the premium may shrink to as low as $500, saving $300 per month, essentially allowing them to pocket an extra $3,600 per year.