The Best Cash Rates for HSA’s
Updated 5/1/2020 - In an effort to keep the economy stable during the historic response to the Novel Coronavirus (COVID-19), the Federal Reserve has cut its benchmark interest rates to near zero. The Fed’s rate change affects everything from loans to CDs to HSAs. As a result, the majority of administrators can only offer paltry interest rates on cash balances. Oh how things have changed in just a few month. This is an updated version of a post that was originally written in February, when interest rates were much higher.
In a previous post we suggested HSA savers consider brokered CDs to safely earn low to moderate returns, but the issue with brokered CD’s is their illiquidity and large minimum purchase order requirements. Another place HSA holders can search for competitive yields is in the default core positions administrators offer.
When you open a HSA, the administrator automatically establishes a core position which is needed for processing cash transactions (checks, EFT’s, wire transfers, direct deposits, ATM transactions, payments made through bill pay) and for holding univested cash. A majority of HSA administrators gladly hold this uninvested cash and payout paltry interest. This is not ideal for HSA holders. Instead, HSA holders should seek HSA administrators that offer competitive rates of return on their uninvested cash to at least keep up with inflation.
We’ve taken the work out of finding the best high yielding HSA’s on the market. In this article we highlight HSA administrators that offer the best interest rates on default core positions.
How we Selected the Best High Yielding HSAs
In selecting the best high yielding HSA’s we took five factors into account;
Safety - The account must offer FDIC insurance to provide safety and peace of mind.
Liquidity - Funds in the account must be readily available for processing cash transactions.
Fees - In this low-interest rate environment, net interest earned on HSA deposits is rather small and can even be negative when fees are excessive. Therefore, only administrators with fee-free or extremely low fees made the cut.
Competitive Yield - We believe HSA holders monies should at least keep up with inflation and this can only be accomplished by either investing or holding their cash in high yielding accounts.
Eligibility Requirements - We only include administrators, banks and credit unions that make it possible for anyone in the US to join.
The first administrator we want to highlight is Evansville Teachers Federal Credit Union (ETFCU). A few important details about EFTCU.
In order to become eligible for membership one must donate $5 to the Mater Dei Friends & Alumni Association.
A minimum of $5 must remain on deposit in the savings account to retain credit union membership.
Minimum balance to earn the dividend rate is $500.
ETFCU does not charge a monthly maintenance fee.
Funds are FDIC insured.
The table below shows the rates offered by ETFCU as of May 1, 2020.
The second administrator we want to highlight is Lake Michigan Credit Union (LMCU), a member-owned credit union that consistently ranks well among credit unions for dividends paid back to members. A few important details about LMCU.
Must be a resident of certain communities in MI & FL OR Member of ALS Association (one time $5 donation)
$0 Minimum Balance, $0 Set Up Fees, $0 Monthly Maintenance Fees
42 branches in 2 states (MI & FL)
LMCU just started offering investments for $30/year. You can now invest a portion of your HSA balance in stocks, bonds, mutual funds and other investment caliber products. The LMCU investment lineup features several low cost index funds from the Vanguard family.
Below you can see the interest rates offered as of May 1, 2020.
Next up is a relatively new startup, Starship, out of New York City. A few important details about the Starship HSA.
Anybody with a HSA eligible HDHP can open a HSA with Starship.
No minimum balance to earn the advertised interest rates.
Starship is fee-free for individuals. No monthly maintenance fee.
Funds are FDIC insured through their bank partner, nbkc Bank.
On balances from $0 - $2,000 participants earn next to nothing in interest, but that changes as they offer 0.25% on any balances over $2,000. This makes the Starship HSA attractive to savers with large balances. Below you can see the interest rates offered as of May 1, 2020.
Next on the list is the Bank of Utah which offers a no fee HSA with decent interest rates. A few important facts about the Bank of Utah HSA.
Anybody with a HSA eligible HDHP can open a HSA with the Bank of Utah.
No minimum balance to earn the advertised interest rates.
No monthly maintenance fee.
Funds are FDIC insured.
The Bank of Utah offering is pretty straight forward. Below you can see the interest rates at different tiers offered as of May 1, 2020.
We want to end this article with a visual illustration of the interest one can expect to earn on different balances. The chart below shows the interest earned at various account balances net of maintenance and membership fees. ETFCU’s 2.01% yield for all account sizes sets itself apart from its peers. It’s the runaway leader even when we take into account the $5 donation “fee“ required to become an eligible member. Starship and the Bank of Utah are also good options since their accounts are fee-free and pay out decent rates on uninvested cash.