HSA Investments Fall on Poor Markets, Rising Rates

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Despite several years of rapid growth, market headwinds lowered the amount of money invested via health savings accounts (HSAs) last year.

Key Takeaways

  • Investment balances in health savings accounts (HSA) dipped in 2022, the first decline in more than a decade.
  • However, HSA investments are projected to continue to climb in coming years to grow by 75% in 2025. 
  • HSA that include investments are nearly seven times larger than accounts that rely solely on deposits.

That's according to data released last week from HSA investment provider Devenir. The amount of HSA balances used for investments dipped 2% in 2022, down to $33.8 billion and breaking a growth streak going back at least a decade.  Investments represented 32% of all HSA account balances In 2022.

“More HSAs than ever are investing, but the rapid growth seen over the last few years has slowed in the face of significant market headwinds and rising rates in 2022,” the report said.

Difficult market conditions in 2022 shrunk the investments held in HSAs. One big factor was rising interest rates, which have been hiked by the Federal Reserve nine times to an upper limit of 5% since March last year. Stock market volatility also contributed to the decline, as the benchmark S&P 500 index fell 19.4% in 2022.

Despite these conditions, 2.6 million account holders used their HSAs to invest. About 7.2% of all HSA accounts had some money in investments in 2022, up from 6.9% the prior year and 3.7% in 2018.

Last year’s drop in investment balances is projected to be short-lived, according to Devenir, as it sees continued jumps in HSA investment balances in coming years. Devenir forecasts HSA accounts will hold $59 billion in investments by 2025, what would be a 75% jump from 2022.  The number of HSA accounts will also continue to rise during that period, approaching 43 million. 

Like a 401(k), an HSA is an employer benefit that gives workers a tax break to encourage savings. But while a 401(k) is designed to offer retirement savings, an HSA offers workers tax-free savings to pay for healthcare expenses that can be withdrawn at any time.

Also like a 401(k), HSA account holders can devote a portion of their account to investments, with the share of investment assets held in accounts soaring in recent years. In 2021, 35% of all HSA balances were put toward investments, up from 14% in 2015.

HSAs With Investments Are Much Larger

The HSAs with investments are much larger than those who only rely on growth through tax-free deposits. Accounts that hold investments have an average total balance of $16,397, which is 6.7 times higher than accounts with no investments. 

Overall, HSA account balances grew 9% in 2022, reaching $104 billion. Balances were pushed upward by an increasing amount of cash deposits. Also, more workers chose to start an HSA account in 2022, with new accounts rising 6% to 33.4 billion.

Health savings account providers are also confident in their own growth, projecting HSA assets will grow 13% in 2023. But Devenir’s report also raised questions about whether they can hit those projections. 

“Historically, HSA providers have been fairly accurate with their growth forecasts, demonstrating an impressive understanding of the outlook for their book of business,” the report said. “However, as a greater share of HSA assets is held in investments, market movement will make forward-looking projections more difficult.”

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  1. Devenir. “2022 Year-End Devenir HSA Research Report.”

  2. U.S. Federal Reserve. "Open Market Operations."

  3. FRED. “S&P 500.”

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