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Smart Money Podcast: What’s an HSA? Growing Wealth with Health Savings Account Investing

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Welcome to NerdWallet’s Smart Money podcast, where we answer your real-world money questions. In this episode:

Understand the different ways you can utilize a health savings account and learn tips and tricks for HSA investing.

This Week in Your Money: Where can you find an unbiased analysis of the best financial products available? What products can help you make the most of your finances? Hosts Sean Pyles and Sara Rathner discuss NerdWallet’s Best-Of Awards, a resource that can serve as a shortcut when it comes to finding the right financial tools for your goals. They share some highlights from this year’s awards, including the best all-purpose travel rewards credit card and the best broker for beginner investors.

Today’s Money Question: How does HSA investing work? Investing Nerd Alieza Durana joins Sean and Sara to answer a listener’s questions about health savings accounts — what are HSAs, how do they work, and what are the benefits of having one? She discusses how you can use HSA funds for qualified medical expenses, how HSAs are similar to 401(k)s or Roth IRAs, and the triple tax advantages of HSAs. She also addresses the debate around whether to spend HSA funds on current medical expenses or save them for future healthcare costs in retirement, which leads to a discussion on balancing the need for immediate healthcare with long-term savings goals.

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Episode transcript

This transcript was generated from podcast audio by an AI tool.

What if a single product could transform your life and your finances?

Not going to happen, but it’s worth a shot.

Welcome to NerdWallet’s Smart Money Podcast. In case you’re new here, on this show, our goal is to answer your money questions and help you make smarter financial decisions. I’m Sean Pyles.

I’m Sara Rathner. So as Sean said, this show is all about your money questions. So whether you’re trying to figure out if you need to hire a professional to help you with your taxes this year, or you just want help choosing a new high-yield savings account, we Nerds have your back.

You can text your questions or leave us a voicemail on the Nerd hotline at 901-730-6373. That’s 901-730-N-E-R-D, or you can email your question to [email protected]. This episode Sara and I take on a listener’s question about how to balance spending or investing the funds in their health savings account or HSA. But first, we are going shopping. For financial products, that is.

Well, I don’t know what kind of jeans or in style anymore, so financial products are my favorite kind of shopping.

Yes, so savvy listeners will know that all month long we’ve been running a special series about how you can make the most of your finances in 2024, from knowing how to set your goals to managing your credit and investing. To wrap things up, we’re going to talk about how you can use financial tools like credit cards or investment accounts to get what you want from your money this year and how to find the right one for you, and a heads-up that we might mention some companies that are NerdWallet partners in this segment, but that doesn’t affect how we talk about them.

We talk a lot on Smart Money about how money is just a tool. It’s something you can deploy with the intent to get what you want in life. Often, financial products are the tool on top of the tool to help you get things done. If you want to save more money, you can open a high-yield savings account to earn more interest on your savings.

To get what you want from your finances, you have to know which products are most effective for your situation. With the wrong one, you might just be spinning your wheels and not really making meaningful progress on your goals. But Sara, here’s the thing. Shopping for something like a bank account can be, dare I say the word, boring. I mean, not for me. When I was shopping for my mortgage back in 2020, I found the process of compiling a spreadsheet and comparing rates from different lenders to be inordinately fun.

To be fair, the things we found to be fun at the start of the pandemic got pretty weird. Remember all that sourdough?

Yeah, I’m pretty sure I still have an old sourdough starter rotting in the back of my fridge somewhere, but-

Oh, Sean, clean out your fridge.

It’s on my to-do list. I’ll get to it eventually. But really, I do get a lot of satisfaction from doing the research into various financial tools and choosing the one that helps me meet my goals in the most cost-effective way. So for those who are not steeped in the world of money like we are, Sara, let’s talk about how they can make shopping for financial products a little bit easier.

Well, obviously that is NerdWallet’s bread and butter, not sourdough rotting at the back of your fridge bread and butter. But we Nerds spend countless hours all year long compiling unbiased reviews of financial products and selecting the ones that are best for listeners like you.

You might be thinking, “Well, one brokerage account can’t really be that much different from another,” to which I say, wrong. This is why our reviews are really handy, because even if you don’t know what makes one account better than another, the Nerds do and they break down different features that you have to compare when you’re shopping around.

Every year, we put out our Best-Of Awards where we declare the best products across a range of categories like best travel credit card with no annual fee, best budget-friendly auto insurance, and so many more. The Best-Of Awards can serve as a shortcut when it comes to finding the right financial tools for your goals, but you still want to be thoughtful about the decision. Don’t just go with the best one overall. Spend some time digging into the review, and make sure that it is actually the best product for you.

Yeah, I like to think about adding a new financial product to my lineup like adding a new plant to my garden. A new flower or exotic tomato variety might sound really fun, but is it actually the right fit? Will it yield the fruit that I want, and how much maintenance is it going to be? You have to make sure that the product that you’re getting is going to deliver what you need it to.

You want to confirm that you’re the right person for the product too. Like if you want a new travel card, but your credit score is kind of in a rough spot, you might want to hold off on applying until you have a good or excellent credit score since those types of cards can be a little bit harder to qualify for. All right, well, Sean, enough preamble. What were some of the winners of this year’s Best-Of Awards?

Okay, claiming the title of best all-purpose travel rewards credit card is drum roll, please, the Chase Sapphire Preferred card. The Nerds like that for a relatively affordable annual fee, you get access to rewards across multiple categories. Plus, the signup bonus and the transfer partners are just hard to beat.

Okay, how about one more? The winner of the best broker for beginner investors goes to Fidelity. Fidelity is a perennial winner in this category, and our Nerds really like how it offers access to over 3,000 no transaction fee mutual funds, and a high interest rate on uninvested cash.

If folks want to see even more of our Best-Of winners, we will have a link in this episode’s show notes post at So check that out.

Before we move on to this episode’s money question segment listener, we have an exciting announcement. We’re running a book giveaway sweepstakes ahead of our next Nerdy Book Club episode. Next month we’re speaking with Ashley Feinstein Gerstley, author of The 30-Day Money Cleanse, which is about exactly what it sounds like. I’m guessing it doesn’t involve lemon juice and cayenne pepper, though.

No. To enter for a chance to win our book giveaway, send an email to [email protected] with the subject Book Sweepstakes during the sweepstakes period. Entries must be received by 11:59 PM Pacific Time on February 29th. Include the following information: your first and last name, email address, zip code and phone number. For more information, visit our official sweepstakes rules page.

This episode’s money question comes from a listener named James who sent us an email. Here it is. “Hello, love the podcast.” Thanks, James. “I have a question about investing my HSA. For the most part, I’m hands-off with my 401(k) and Roth IRA because I don’t need the funds now. With my HSA, I do need those funds, but not all of it throughout the year. So what strategies can I use to invest but also use the account, and how does investing even work in an HSA?” Thanks, James.

To help us answer James’s question on this episode of the podcast, we are joined by NerdWallet investing writer Alieza Durana. Welcome, Alieza.

Before we get into the episode, just a quick disclaimer that we are not investment advisors. So Alieza, let’s start with the basics. Can you describe what an HSA is and how investing comes into play?

Sure thing. An HSA or a health savings account is a home for your medical money, or more officially, it’s a tax advantaged account for healthcare expenses. So an HSA can give you a place to save or invest your healthcare budget like a retirement or an investment account, but not everyone qualifies. For instance, you can’t generally have another health insurance plan or be on Medicare and also have an HSA.

So speaking of qualifying, these accounts aren’t just available to anyone. It’s not like opening up a high-yield savings account, right?

No, you’re absolutely right. An HSA is not a typical savings account. They’re only available to people that have a high deductible health plan. You may access one through your employer or maybe through a financial institution like a bank or a credit union.

We should also talk about what you can use the funds in an HSA for. As you might imagine, a health savings account is intended for health-related expenses. So that can be things like copays for doctor’s appointments, a new pair of glasses, expenses that fall under the umbrella of qualified medical expenses. If you have an HSA and you spend the fund on non-qualified medical expenses, you will face penalties including a 20% penalty on that distribution if you’re under 65, and they’ll be taxed as ordinary income. So that’s something to keep an eye out for as well. Alieza, let’s also talk about the mechanics of investing through an HSA. What kinds of options do people typically have?

So to get started, you’ve first got to fund the HSA and put money in it. You then receive a debit card that you can use to pay for those qualified medical expenses you were just mentioning; so medical care, prescription drugs, dental and vision care and other over-the-counter medications. But don’t forget that there is an annual limit on how much you and your employer can contribute towards your HSA.

That limit typically changes annually.

So James also asked about specific investments within the HSA, so that brings me to two points. The first is that an HSA is just a vessel for investing. It’s an account like a 401(k) or a Roth IRA. Once you put the money into the account, you then need to choose what to invest in. Second, investments within the HSA are probably pretty similar to the investment options that James would find in an account like a 401(k) or Roth IRA. You might be able to invest in stocks, bonds, exchange traded funds or more. So for my HSA, I’m invested in a target date fund, which rebalances my investments to be less risky over time as I get closer to retirement.

So when we talk about investing and earnings, we usually also end up talking about taxes, but HSAs have a pretty sweet tax treatment. Can you describe that?

Absolutely. HSAs are triple tax advantaged. You put money in tax-free, it grows free year to year and is tax-free upon withdrawal for qualified expenses. But let me walk you through it. So first, contributions are made pre-tax or are tax-deductible, so contributing to your HSA can help you lower your taxable income. Second, the funds can be invested, as Sean mentioned, not just saved, and unused funds roll over year to year and compound. Last, growth and distributions are tax-free if used for eligible expenses.

We should also talk about the debate around whether it’s “best,” in air quotes there, to use the funds in an HSA for expenses throughout the year or avoid tapping your HSA if at all possible so you can accumulate a pot of money for healthcare in retirement. This seems to be at the crux of James’s question, too. So Alieza, what are your thoughts on this?

It’s complicated. Some investment advisors recommend investing and not spending your HSA funds in order to let them grow long term, but that’s really not a hard-and-fast rule. Our colleague, Certified Senior Advisor Kate Ashford, is a specialist in aging, and she really reminds people to consider your healthcare needs first and your savings and investment needs second.

Yeah, that’s a really good point because you don’t want to avoid getting or paying for healthcare now because you’re hoping that this pot of money will grow in the future. But that said, if possible, an HSA could be a huge asset in retirement. Some people even refer to these accounts as healthcare IRAs because of their tax treatment and their usefulness for medical expenses later in life.

Yeah. So our listener, James, said that they do need to tap into their HSA for medical expenses throughout the year. How might that limit their investing options?

Just because you can invest your HSA funds doesn’t mean that you have to. James could keep part of their contribution in cash in their HSA, let’s say, the amount that James’s deductible is, and then if they’re able to contribute anything over that amount, invest it. If you’re going to need money in the short term, you want to make sure that it’s there when you go to spend it.

Yeah, and we talk a lot about how it’s a good idea to not invest money that you’ll need within five years so that you can see meaningful growth on your investments and maybe not be in a position where you have to pull your cash out if the market’s in a downturn. The thing is with healthcare, you can’t usually predict when you’ll need to tap money or when you’ll have a healthcare expense pop up. So keeping some liquid cash to cover your deductible or a healthcare expense in an emergency fund or in an HSA can help people avoid going into debt when these bills do inevitably arise.

So Sean, I know you have an HSA, which I don’t, so you can speak to this from personal experience. How do you approach investing the funds in your account versus keeping some of that money liquid so you can pull that money out when you need it for medical expenses?

Yeah, as you have maybe gathered from this conversation so far and the things that I’ve said, I really, really like the idea of having a pot of money for my healthcare expenses in retirement. So I try to max out my HSA contributions each year, but I will pull from it sometimes. I have a thing for glasses, especially expensive glasses for some reason, so I’ll use some funds in my HSA for that. It’s maybe not the most rational decision, but I’m always trying to balance that live for today, save and invest for tomorrow thing, and that’s just how it works for me.

All right. Well, Alieza, are there any final thoughts you would like to leave our listeners with?

Yes. Ultimately, how you save, invest or spend your HSA is unique to your situation and health needs. For example, having an HSA requires you to be able to pay for all of your healthcare costs out of pocket until your deductible is met. If that’s not possible for you from a health or budget perspective, that’s absolutely okay too. I’ve never had an HSA, but Sean does. So even at NerdWallet, people are making lots of different choices for themselves.

Well, Alieza, thank you for coming on and sharing your insights with us.

Thanks so much for having me.

That is all we have for this episode. If you have a money question of your own, turn to the Nerds and call or text us your questions at 901-730-6373. That’s 901-730-N-E-R-D. You can also email us at [email protected]. Visit for more info on this episode. Remember to follow, rate and review us wherever you’re getting this podcast. This episode was produced by Sara Rathner and me with help from Tess Vigeland. Sara Brink mixed our audio, and a big thank you to NerdWallet’s editors for all their help.

Here’s our brief disclaimer. We are not financial or investment advisors. This Nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances.

With that said, until next time, turn to the Nerds.

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