Are Your HSA Funds FDIC Insured?

Health Savings Accounts (HSAs) offer a tax-advantaged way to save for medical expenses, providing a financial tool for individuals enrolled in high-deductible health plans. Many wonder about the safety of these funds, specifically if they are protected in the event of a financial institution’s failure. Understanding these protections is important.

Understanding Deposit Insurance

The Federal Deposit Insurance Corporation (FDIC) is an independent U.S. government agency that insures deposits held in banks and savings associations. FDIC insurance covers deposit accounts such as checking accounts, savings accounts, money market deposit accounts, and certificates of deposit (CDs). This protection extends to both the principal and any accrued interest, up to the standard insurance amount.

The standard FDIC insurance coverage is $250,000 per depositor, per insured bank, for each account ownership category. This means if you have multiple accounts at the same bank but in different ownership categories (e.g., individual, joint, or certain retirement accounts), each category receives separate coverage. FDIC insurance does not cover investment products like stocks, bonds, mutual funds, or annuities, even if purchased through an insured bank.

How HSA Funds Are Held

HSA funds are typically held in one of two primary ways, which dictates the type of insurance coverage applicable. Many HSA providers allow account holders to maintain their funds in a cash account, functioning much like a traditional savings account.

Alternatively, many HSA administrators provide the option to invest a portion of the HSA balance. These investments often include various financial instruments such as mutual funds, stocks, or exchange-traded funds (ETFs). The decision to hold funds as cash or investments affects the nature of the protection your HSA balance receives, as different regulatory bodies oversee these distinct asset types.

Insurance for HSA Cash Deposits

The cash portion of an HSA held at an FDIC-insured bank is covered by FDIC insurance. Health Savings Accounts can fall under specific ownership categories, such as “certain retirement accounts,” for FDIC insurance purposes. This means that the cash held within an HSA at an FDIC-insured institution is protected separately up to the standard $250,000 limit, distinct from other individual accounts a person might hold at the same bank.

This coverage applies per depositor, per insured bank, within this specific account ownership category. To verify if an HSA provider’s bank is FDIC-insured, account holders can look for the official FDIC sign displayed at banking locations or check the FDIC’s BankFind tool online.

Protecting HSA Investments

The investment portion of an HSA, which includes assets like stocks, mutual funds, or ETFs, is not covered by FDIC insurance. FDIC protection is specifically designed for bank deposits and does not extend to securities. Instead, these investments are typically protected by the Securities Investor Protection Corporation (SIPC).

SIPC is a non-profit corporation that protects customers of failed brokerage firms. SIPC coverage protects against the loss of cash and securities held by a customer at a SIPC-member brokerage firm, up to $500,000, which includes a $250,000 limit for uninvested cash. SIPC does not protect against market losses or declines in the value of investments due to market fluctuations. Most U.S. brokerage firms are required to be SIPC members, and account holders can verify their provider’s membership on the SIPC website.

Important Considerations for HSA Account Holders

The $250,000 FDIC limit applies to all accounts within the same ownership category at a single bank. If an individual holds multiple HSAs, or other accounts classified under “certain retirement accounts,” at the same FDIC-insured bank, the combined total across these accounts is subject to the $250,000 limit.

For those with substantial HSA balances exceeding the insurance limits, considering spreading funds across multiple FDIC-insured banks or SIPC-member brokerage firms can provide additional protection. Account holders should review the terms and conditions provided by their specific HSA administrator. These documents detail how funds are held and the applicable insurance coverage for both cash and investment components.