Yes, most HSAs earn interest, but the rate depends on where you keep the money

A Health Savings Account (HSA) can earn interest the same way a regular savings account does. When you deposit money into an HSA, the financial institution holding it — usually a bank or credit union — pays you interest on that balance. The interest rate varies widely depending on which bank or credit union you choose and what type of account they offer you.

The key difference from a regular savings account is that you can only use HSA money for may have access to medical expenses. But while the money sits there waiting to be used, it can grow through interest. This makes an HSA different from a Flexible Spending Account (FSA), which typically does not earn interest and has a "use it or lose it" rule.

Not all HSAs are created equal. Some banks offer interest-bearing HSAs, while others offer non-interest-bearing accounts. You get to choose which financial institution holds your HSA, so comparing interest rates before you open one is worth your time.

Key Takeaways

  • Most HSAs earn interest, but the rate depends on the bank or credit union you choose, ranging from near zero to around 4 or 5 percent in recent years.
  • You can shop around for an HSA provider — your employer does not have to dictate which bank holds your account.
  • Some HSAs also offer investment options like mutual funds or stocks, which can grow faster than interest but carry more risk.
  • Interest earned in an HSA is tax-free, just like the contributions and withdrawals for medical expenses.

How interest rates on HSAs compare to regular savings accounts

HSA interest rates follow the same market conditions as regular savings accounts. When the Federal Reserve raises interest rates, HSA rates tend to rise too. When rates fall, HSA rates fall with them. The actual rate you receive depends on the specific bank or credit union you choose.

Some banks offer HSAs with rates that match their high-yield savings accounts — currently ranging from 4 to 5 percent at competitive institutions, though this changes regularly. Other banks offer much lower rates, sometimes under 1 percent. A few banks offer no interest at all on HSAs, which is why comparing before you open an account matters.

The difference between a 0.5 percent rate and a 4.5 percent rate adds up quickly. On a $5,000 balance, that difference means roughly $200 more per year in your account. Over several years, the gap grows even larger.

Where to find HSAs that pay interest

You are not locked into the HSA provider your employer recommends. You can open an HSA at any bank or credit union that offers one, and you can move your money to a different provider later if you find a better rate.

Start by checking whether your current bank or credit union offers an HSA. If they do, ask what interest rate they pay. If they do not, or if their rate is low, search online for "HSA interest rates" or visit comparison websites that track HSA providers. Many online banks and credit unions publish their current rates publicly.

When you compare, look at the total cost of ownership: some banks charge monthly maintenance fees that eat into the interest you earn. A bank offering 4 percent interest but charging $5 per month may actually pay you less than a bank offering 3 percent with no fees. Ask about fees before you decide.

Investment options inside an HSA

Some HSAs go beyond interest and let you invest the money in mutual funds, stocks, or other securities. This is different from earning interest — you are betting that the value of your investments will grow over time. Investments can earn more than interest, but they can also lose value.

If you choose to invest HSA money, you typically need to keep a small cash balance (often $1,000 to $2,500) in the account for when ready medical expenses. The rest can go into investments. This strategy makes sense only if you do not expect to need the money soon and can tolerate the risk of short-term losses.

Not all HSA providers offer investment options. If investing interests you, check whether your bank or credit union supports it before you open an account.

Tax benefits of HSA interest

Interest earned in an HSA is tax-free. You do not pay federal income tax on the interest, and in most states you do not pay state income tax on it either. This is one of the reasons HSAs are powerful savings tools — the interest compounds without being taxed away.

Compare this to a regular savings account, where you owe federal income tax on the interest you earn. If you earn $200 in interest in a regular savings account and you are in the 22 percent tax bracket, you owe about $44 in federal taxes. In an HSA, that same $200 is entirely yours.

How to move your HSA to a better-paying bank

If you opened an HSA years ago and the interest rate is now very low, you can move it to a bank offering a higher rate. This is called a trustee-to-trustee transfer. You do not withdraw the money yourself — the old bank sends it directly to the new bank. This way, you avoid taxes and penalties.

Contact the new bank first and ask them to initiate the transfer. They will handle most of the paperwork. The process usually takes one to two weeks. You can do this transfer as often as you want, though doing it multiple times per year is unusual and may trigger extra paperwork.

Before you transfer, make sure the new bank actually offers the rate they advertise. Rates change, and a bank that was offering 4.5 percent last month might have lowered it to 2 percent this month. Confirm the current rate in writing before you move your money.

What happens to interest if you use the money for medical expenses

Interest you have already earned stays in the account and remains tax-free, even after you withdraw money for medical expenses. If you had $10,000 in your HSA and earned $200 in interest, bringing the balance to $10,200, and then you withdraw $3,000 for a doctor visit, you still keep the $200 in interest.

The interest is not tied to any specific dollar amount — it belongs to the whole account. As long as you use the money for may have access to medical expenses eventually, all of it — including the interest — stays tax-free.

Frequently Asked Questions

Can I lose money if I keep my HSA in an interest-bearing account?

No. An interest-bearing HSA is a savings account, not an investment account. Your balance will not go down. The only risk is that interest rates fall, so you earn less than you did before. But you will not lose the money you deposited.

What if I invest my HSA and the stock market drops?

If you choose the investment option and the market falls, your HSA balance can decrease. This is different from an interest-bearing account. Only invest HSA money if you can afford to leave it untouched for several years and tolerate short-term losses.

Do I have to earn interest on my HSA?

No. You can keep your HSA in a non-interest-bearing account if you prefer. Some people do this because they plan to use the money soon and do not want to deal with comparing rates. But since interest-bearing accounts cost nothing extra, most people choose them.

Can I move my HSA to a different bank if I do not like the interest rate?

Yes. You can request a trustee-to-trustee transfer to move your HSA to any other bank or credit union that offers one. The transfer is tax-free and usually takes one to two weeks. You can do this as often as you want.

Is the interest I earn on my HSA taxed?

No. Interest earned in an HSA is tax-free at the federal level and in most states. This is one of the major advantages of using an HSA as a savings tool for medical expenses.