Don’t Keep Your HSA Balance in Cash — Put It to Work Instead

In 2020, the United States had a gross domestic product (GDP) per capita of $63,487. In the same year, healthcare spending per capita hit $11,945, implying that the nation spent nearly 19% of its GDP per capita on healthcare.

This fraction is nearly double what peer countries spend on healthcare. For comparison, Norway’s GDP per capita in 2020 was $68,359, but the Scandinavian country spent just $6,748 on healthcare per capita — a little under 10% of its GDP per capita.

It’s no surprise, then, that healthcare in the United States is rather expensive. Luckily, certain highly tax-advantaged accounts, like a Health Savings Account (HSA), can help you offset some of these costs.

And an HSA isn’t strictly a savings account. While you can treat it as a rainy-day fund and keep it all in cash, it might be a better idea to put your HSA balance to work instead, especially if you don’t anticipate any healthcare expenses in the near future or you have a substantial account balance.

Image source: Getty Images

Investing in your HSA

In 2022, the HSA contribution limit is $3,650 for individuals and $7,300 for families. To qualify for an HSA, you or your family must be enrolled in a high deductible health plan (HDHP), with a deductible of at least $1,400 for individuals or $2,800 for families.

While this contribution limit might not seem like much — and might not cover even a year’s worth of healthcare expenses in some cases — it can add up over time. If you go for several years without needing to withdraw from your HSA for healthcare, you could have a significant amount in the account.

For example, suppose you contribute the HSA limit every year for three years and make no withdrawals during that period. By the end of year three, you will have nearly $11,000 in the account.

Yet, that’s assuming you let your money sit in cash and earn no interest. What if you invested your money instead? If you put the money in a broad-market equity index fund like the Vanguard Total Stock Market Index Fund ETF (NYSEMKT: VTI) and achieve a compound annual growth rate (CAGR) of 10% (roughly equal to the long-run average annual return of the underlying index), you would have just over $12,000, or about $1,000 more than if you hadn’t invested at all.

But what if you did this for an extended period of time — for 10, 20, or even 30 years? Here are the numbers:

Length of Time

Cash Only (0% CAGR)

Bear Case (8% CAGR)

Base Case (10% CAGR)

Bull Case (12% CAGR)

10 years





20 years





30 years





As you can see, you end up with a much larger HSA if you invest the balance instead of keeping the funds in cash. As the amount of time grows, so does the gulf between an all-cash HSA and an HSA that’s been put to work and invested.

For instance, you will have $208,939 in your HSA after compounding at 10% for 20 years — nearly three times as much as you would have had by keeping the money in cash. And over 30 years, you’ll end up with over $600,000 — nearly a half-million more than an all-cash HSA.

Make your HSA work for you

HSAs are first and foremost a tool for covering healthcare expenses. But such costs often come in sporadic bouts, and you could go several years without needing to spend much before suddenly incurring a major hospital or surgery bill.

During those years, keep making HSA contributions. And once the money is in your account, make sure it’s working hard for you. By investing those HSA funds, you could wind up with a noticeably higher balance than if you just keep your money in cash, especially as time goes on. That way, you’ll be able to sleep soundly at night knowing you can comfortably afford all your healthcare, no matter how expensive things get.

Fool contributor Ryan Sze has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard Total Stock Market ETF. The Motley Fool has a disclosure policy

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