For many years, I’ve had a high-deductible health plan (HDHP). This is a health insurance plan that, as the name would suggest, comes with a higher deductible. It saves me premium payments but leaves me on the hook for more of the medical bills. Since I’m a light user of health insurance, this is a trade-off I’m happy to make.
The main reason I opt for an HDHP, however, isn’t for the lower premium payments. It’s because it gives me access to a great tax-advantaged savings option in the form of a Health Savings Account (otherwise known as an HSA).
HSAs are great because of the special tax benefits that they offer. They’re one of the only forms of triple-tax-advantaged savings available, where you can save money pre-tax, allow it to grow tax-free, and withdraw it tax-free. Whether it makes sense for you to get an HDHP so you can have an HSA will depend on your specific circumstances. But if you’re in a position where an HDHP makes sense, taking advantage of an HSA is something you should definitely do.
There are a lot of HSA providers out there. Over the past several years, I’ve used an HSA provider called Lively. It worked out well for me because it had a great mobile and online interface, and it made it easy to track my yearly contributions and my HSA-eligible expenses. The investment options available with Lively were strong too, although the investing was done via TD Ameritrade, so on the investment side, it wasn’t quite so pretty or intuitive. Still, Lively got the job done. And importantly, it charged no fees and didn’t require keeping a minimum cash balance (so I could invest everything I was saving in my HSA).
Unfortunately, as seems to be the case with a lot of these fintech companies, things changed and new fees were introduced. I’m against paying fees when I don’t need to, so once these new fees went into effect, I started looking for a new HSA. After doing a bit of research on which HSA to use, I ended up settling on the Fidelity HSA.
Why I Switched Over To A Fidelity HSA
To begin, let’s start with what happened with Lively that made me look into switching to a different HSA. Back in 2019, Charles Schwab bought TD Ameritrade and this year, they finally began the process of merging TD Ameritrade accounts with Charles Schwab accounts. Lively had been using TD Ameritrade as their investment platform, so with Charles Schwab merging TD Ameritrade accounts, it meant that all Lively accounts were switching over to Charles Schwab investments.
Unfortunately, the switch to Charles Schwab seems to have changed the pricing structure and minimum cash balance requirements at Lively. Previously, I didn’t need to have any minimum cash balance and there were no fees to invest my HSA funds. The new pricing structure now requires keeping $3,000 in cash to keep your account fee-free or else you have to pay a $24 per year administrative fee.
$24 per year in administrative fees isn’t a deal-breaker by itself, but on principle, I can’t justify paying that fee or keeping $3,000 in cash when there are good free HSA options as well.
Fidelity hit the mark with what I needed. And since I already use Fidelity for my Solo 401k, using Fidelity for my HSA makes things a bit simpler for me by keeping more of my investment accounts in one spot.
The Benefits Of The Fidelity HSA
Here’s a rundown of why the Fidelity HSA made sense to me after looking at my different HSA options.
1. No Fees and No Minimum Cash Balance
The most important reason I opted for the Fidelity HSA is that it charges no fees and has no minimum cash balance requirement. The $24 per year in fees that Lively would have charged me isn’t a huge deal, but it’s still something that I’d rather not pay if I can.
The bigger deal is if your HSA provider requires you to keep a minimum cash balance, as many HSAs require customers to keep a minimum cash balance in their account, with any funds above that free to invest. If, like me, you’re using your HSA as an additional tax-advantaged investment account, then this cash drag will cost you quite a bit over the long term since that money isn’t being put to work in the market. Fidelity doesn’t require any minimum cash balance, so I can put all of my HSA funds to work in the market.
2. I Can Invest In The Fidelity ZERO Total Market Index Fund (FZROX)
One interesting thing about Fidelity is that they offer several index funds with a 0% expense ratio. This is pretty remarkable, as there is no other company that currently offers index funds with a 0% expense ratio. Not even Vanguard can match this.
The best Fidelity zero-fee index fund is probably the Fidelity ZERO Total Market Index Fund (FZROX). This is an index fund that aims to match the total stock market and is very similar to other Total Stock Market Index Funds, such as Vanguard’s Total Stock Market Index Fund. As Fidelity states on their website, FZROX seeks “to provide investment results that correspond to the total return of a broad range of publicly traded companies in the US.” In other words, if you want to match the market, FZROX is a great option.
There are a handful of total stock market index funds that I’m comfortable investing in. Vanguard’s Total Stock Market Index Fund (VTSAX) is generally the one I think is best, but Fidelity’s Total Stock Market Index Fund (FSKAX) and their ZERO Total Market Index Fund are on the same level in my view. I’m very comfortable investing in FZROX for the long term.
3. I Already Have A Fidelity Solo 401k.
Finally, switching over to the Fidelity HSA made a lot of sense because I already have other retirement accounts with Fidelity, specifically my Solo 401k.
I’ve talked about why the Fidelity Solo 401k is my preferred Solo 401k provider in previous posts, so switching my HSA over to Fidelity was a natural step. In fact, it simplifies my accounts a bit more, since I now have two of my tax-advantaged accounts with Fidelity (I have my Roth IRA with Vanguard, however).
The (Very) Minor Downsides With The Fidelity HSA
In the interest of completeness, I thought it would be worth briefly mentioning a few of the (very) minor downsides of the Fidelity HSA. None of these should be deal breakers, but they’re worth a quick mention.
To start, Fidelity’s HSA is definitely not as nice looking as Lively. One of the things that first attracted me to Lively was how intuitive and easy to use it was. Fidelity’s interface is fine, but Lively has them beat there.
It’s also worth knowing that while FZROX is an excellent fund, it isn’t a portable fund. That means you can’t move your FZROX investment in-kind to another brokerage. If you were to switch to a different brokerage, you would first have to liquidate the fund and then transfer the money in cash to your new brokerage. In an HSA, this isn’t anything to worry about since HSAs are tax-advantaged accounts, so liquidating your investments wouldn’t create a taxable event. You’d only really have to worry about this if you were investing in FZROX in a taxable account.
Again, none of these downsides really matter, but I thought it was worth briefly mentioning here.
The Process Of Switching From Lively To The Fidelity HSA
Switching over to the Fidelity HSA was a simple process. When you open your Fidelity HSA, you’re asked if you have funds in another HSA that you’d like to move to Fidelity. If you answer yes, you’ll fill out some information about your previous HSA and Fidelity will generate a form for you that it sends to your current HSA provider so that they can transfer your funds to Fidelity.
When I opened my account, I filled out this information and Fidelity immediately sent a form to Lively without me having to do anything. Within a day, Lively received my information and sent me a secure message with a few questions to confirm the transfer. I indicated that I wanted to keep my Lively account open in case any trailing dividends were later posted to my account.
They also asked me if I wanted to transfer my investments in-kind or liquidate them into cash and then transfer the cash to Fidelity. I opted to liquidate my investments since my plan is to invest all of my HSA funds into FZROX. Since it’s an HSA, liquidating my investments doesn’t create a taxable event.
Overall, I was surprised at how easy it was to transfer my funds to my Fidelity HSA. With other brokerage accounts, transferring funds has always been a huge pain, requiring me to manually fill out multiple forms and talk to customer service people. The fact that I could do everything online with Fidelity and didn’t have to call anyone was amazing.
Lively isn’t a bad HSA, but I think at this point, Fidelity is the better option when it comes to HSAs. Indeed, for most investment accounts, Fidelity is up there as one of the best. They’re already my favorite Solo 401k provider. Now they’re my favorite HSA provider too.
If you’re using Lively and are in the same position as me, Fidelity is what I’d recommend for your HSA. Their interface is solid. It’s free with no minimum balance requirement. And you get great investment options, especially with their zero-fee index funds.