Submitted by Puzzlehead--92 t3_127q99n in personalfinance

Hi - I have some funds (aside from my cash balance) in my HSA that I can invest in. I use Fidelity and I'm debating between ladder CDs with ~5 rate vs index funds (FZILX and FZROX). With the current rate environment, is it better to invest in CDs (thinking about ladder CDs) or in low cost index funds?



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sciguyCO t1_jefaynf wrote

It boils down to what kind of timeline you hope/expect to have before needing to draw from that balance. Some people plan to grow their HSA balance all the way until retirement. Others use it more as a supplemental emergency fund (potential to draw earlier). Others have enough ongoing medical expenses that they keep their HSA primarily cash to cover those, getting only the "tax free on contribution / withdrawal" savings, skipping out on the "tax free growth".

The longer you intend to leave the funds invested, the more likely you are to ride out any downswings of more volatile (though often higher return) investments like stock funds. Over the long term, things like stock funds are somewhat expected to grow more than a conservative option like a CD.

So the answer is "whatever fits best with your financial situation and plans".


RussRevengeTour23-24 t1_jef9awb wrote

In the same boat myself rn. I took half and put it into an index fund last year. Up like 4% on that I think. I’ll probably leave that as is and then take some more of my cash balance and put it into a CD. HSAs are great!


Puzzlehead--92 OP t1_jefdlw7 wrote

Thanks! I was thinking of a CD ladder for the short term and recalibrate if (and when) the fed pivots. Long term though ETF's seem the better option.

Are there any tax implications for interest earned with CDs in HSAs given that the principle+interest (without auto-roll) would be back in the account?


RussRevengeTour23-24 t1_jeffbko wrote

Not positive on that, but I don’t think there are any taxes. You always hear of the “triple tax advantages” of the HSA. It’s the best thing going.

Edit: confirmed that there shouldn’t be any taxes on growth.,enjoy%20tax%2Dfree%20growth%20potential.


whisky_in_your_water t1_jeg1vxf wrote

Yup, no taxes whatsoever unless you withdraw w/o a valid medical expense, and there's a penalty if you withdraw w/o a valid medical expense before 65, at which point it's essentially an IRA.


PalaHeels t1_jeg3gs8 wrote

I would warn you against trying to time the market. If you view that money as long term then the best plan is an index fund/ETF regardless of what the fed is doing right now. You have no idea when the market will shift. If you need the money safe in CDs, that should be the plan going forward as well.


ComprehensiveTrip714 t1_jef9cid wrote

How are you able to use HSA funds for investing? I thought that wasn’t allowed. Those funds are only supposed to be used for medical expenses.


Great_Smells t1_jefd41w wrote

My plan (all plans?) requires that I keep $1000 in “cash” and the rest can be invested. I have about $35k invested in the various funds offered in my plan.


whisky_in_your_water t1_jeg1mim wrote

Mine is $2k and there's a $3/month investment fee, so I transfer money out to my other HSA at Fidelity every few months before it hits $2k. That way I avoid fees and can invest it a bit sooner.


WhySuchALongName t1_jefsous wrote

Maybe you're thinking of an FSA? Those cannot be invested and can only be used for medical expenses.

An HSA can be either invested or used for medical expenses.


shadow_chance t1_jefrues wrote

You can invest them with most providers until you need to withdraw.