Only 6% of health savings account holders invest in those accounts, according to an Issue Brief published by EBRI. With such powerful tax benefits provided by these accounts but, evidently, not being taken advantage of, the organization set out to understand the difference between HSA investors and those who were using them as a checking or savings account.
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An examination of EBRI’s HSA Database found that of that 6% of HSA investors, most invested their balances in the first year after opening the account. Among those who waited, a similar percentage (62%, compared to 63%) invested in the first three years of after opening the account.
At the same time, longer tenures are also associated with more investing. The HSA Database, which includes data on 9.8 million accounts with $22.8 billion, shows that 17% of accounts that had been open 15 years or more had investments other than cash, compared to 2% in their first year and 12% in their eighth year.
Are investors just waiting until they have “enough” to invest in their HSA? Maybe. EBRI did identify spikes in investing when balances reached the $1,000, $3,000 and $6,000 levels.
“However, there was a great deal of variance in account balances at the time of investing, suggesting that this only describes a small share of investors,” EBRI wrote.
Account owners who take large distributions are less likely to use their HSA for investing, EBRI found. Owners who took 50% or more of their account balance in a distribution were less likely to transition to investing.
“We find that plan deductibles do not serve as a strong signal to accountholders that they should save that much before investing, and that account tenure and account balance are strongly associated with an increased likelihood of investing,” EBRI wrote.
[Related: Health Savings Accounts: High Deductibles, High Anxiety]
Early education that familiarizes account owners with the full range of benefits provided by HSAs could be helpful in spurring more investing in the accounts, EBRI suggested. The institute also recommended providing employees with seed money to get them to those higher balances quicker as a potential strategy.
Danielle Andrus works as an editor for The Financial Planning Association® (FPA®). Over the past 15 years, she has worked in various capacities, including writing and editing. Andrus has worked for several notable publications and outlets and spent more than seven years as the executive managing editor at ALM Media, publisher of Investment Advisor magazine and ThinkAdvisor.com. Before that, she was online editor for Summit Professional Networks, where she oversaw newsletter development for four magazines, including Benefits Selling, Senior Market Advisor, Boomer Market Advisor, and Bank Advisor.
