Should you invest your HSA? Cash minimums explained

The IRS says the interest or other earnings on the assets in an HSA are tax free, and that distributions used for qualified medical expenses aren’t taxed. (IRS Pub. 969) Many HSA providers offer a way to move part of your balance from a cash account into investments such as mutual funds. Which investments you can pick depends entirely on the provider, and some don’t offer investing at all.

Many providers set a balance you must reach before you can invest. We call it the invest-from balance. Providers word it differently. Some describe it as the balance you need before investing opens up, others as the cash you must keep in the account. Read your provider’s exact wording, because it changes how much of your money is actually available to invest.

Here’s an illustration with made-up numbers. Say a provider requires $1,000. If investing opens once your balance reaches $1,000, then at $1,000 you could start investing. If the rule is that you keep $1,000 in cash and invest only what’s above it, then at $1,500 only $500 is investable. Which one applies is a question for your provider.

Cash in an HSA held at an FDIC-insured bank is covered by deposit insurance, generally up to $250,000 per depositor per category (the FDIC treats an HSA as a single account or a trust account depending on whether you’ve named beneficiaries). But the FDIC is explicit that non-deposit investment products, such as mutual funds, are not FDIC-insured. (FDIC)

Investor.gov says the same about funds: they can lose value, and you may lose some or all of your investment. (Investor.gov)

The FDIC also gives a practical tip: before you invest some of your HSA in the market, consider whether you have enough in your insured deposit account to cover unplanned medical expenses you may owe next year, in case the investments lose value. (FDIC)

1. Know your worst year. Find your health plan’s out-of-pocket maximum. It’s the most you’d owe for covered in-network care in a year. (The IRS also caps what an HDHP can set: $8,500 self-only and $17,000 family for 2026, and $8,700 and $17,400 for 2027, per Rev. Proc. 2025-19 and Rev. Proc. 2026-24. Your plan’s own number may be lower.)
2. Decide what you’d cover from the HSA and what from other savings. If a bad year would force you to sell investments at a low point, that’s the risk the FDIC warns about.
3. Think about time. You don’t have to take money out of an HSA each year, and unused amounts generally carry over, so some people treat part of the balance as long-term money. (IRS Pub. 969) How long you’d leave it, and how much risk you’re comfortable with, is a personal call.
4. Check the costs of investing. Look for any investment account fee, plus the ongoing cost of each fund. Investor.gov explains that the expense ratio is the annual percentage of a fund’s assets used for operating costs, and those costs reduce your returns. (Investor.gov) Our fees guide covers the rest.

• Spending on non-medical items is costly. Money taken out for something other than a qualified medical expense is taxable and may be hit with an additional 20% tax. That additional tax doesn’t apply after you’re disabled, reach 65, or die. (IRS Pub. 969)
• Keep records. The IRS expects you to be able to show that withdrawals were exclusively for qualified medical expenses, that those expenses weren’t paid or reimbursed from another source, and that they weren’t taken as an itemized deduction. Save receipts. (IRS Pub. 969, “Recordkeeping”)
• Expenses must come after the HSA exists. Expenses you had before you established your HSA aren’t qualified medical expenses for HSA purposes. (IRS Pub. 969)

• How much must I have in cash before I can invest, and is that a balance I must reach or cash I must keep?
• What does investing cost: an account fee, trading fees, fund expense ratios?
• Which funds can I pick, and are there any low-cost options?
• What does the cash portion earn?
• Is my employer’s version of this account different from your public retail account?

Then compare your answers in the directory. If a different provider’s cash minimum or fees look better, the calculator and our guide to transferring without surprise fees help you decide whether a move is worth it.