DEFINITION of HSA Custodian

Any bank, credit union, insurance company, brokerage or other IRS-approved organization that offers health savings accounts (HSAs).  Financial institutions that manage HSAs are also called HSA administrators. An HSA custodian or administrator simply holds HSA assets; the account holder directs how to use them.

BREAKING DOWN HSA Custodian

An HSA custodian makes it possible for individuals to contribute to an HSA and withdraw funds as needed to pay medical bills. Custodians pay interest on cash balances, and some let account holders invest in stocks, bonds and funds to potentially earn a higher rate of return on money they don’t need to pay for medical expenses in the short term.

HSA custodians charge fees for their services. Fee types and amounts vary by custodian.  Some basic, ongoing fees you might have to pay include an annual administrative flat fee and a quarterly custodial fee calculated as a percentage of your account balance. There are also fees you can incur if you make mistakes, such as an excess contribution correction fee if you deposit more than the IRS limits to your HSA. There may also be fees to issue additional debit cards to family members or to replace lost or stolen debit cards. HSA custodians also charge many of the same fees that checking accounts charge, such as non-sufficient funds fees, account closure fees and stop payment fees.

If you open an HSA through your employer, you might be automatically enrolled with a particular HSA custodian, but you have the option to switch (before doing so, ask your HR department how this will affect payroll withdrawals to fund your HSA account). If you open an HSA on your own, your choice of custodian is entirely up to you. Your choice of HSA custodian is important because the interest you earn, the fees you pay and the investment options available can have a significant impact on your HSA balance over time. As with any financial account, you want to minimize your fees and maximize your returns. You also want to make sure your cash balances will be FDIC insured and your investments, if any, will be SIPC insured. For more information, see Investopedia's tutorial How HSAs Work.