HSAs and FSAs both cover out-of-pocket medical expenses — which one should you choose?
What is an HSA?

Designed to cover qualified medical expenses, an HSA can either be sponsored by an employer or opened by an individual. To open an HSA, you must: Be covered under a qualified high-deductible healthcare plan (HDHP)

Not be covered by Medicare or any plan that is not a qualified HDHP

Not be claimed as a dependent HSA contribution limits in 2023 are $3,850 for individual filers and $7,750 for families.

For 2024, the limits are $4,150 for single individuals and $8,300 for families.

What is an FSA?

An FSA also allows you to save for medical expenses, but you don't need to be enrolled in an HDHP to qualify. Your employer only has to offer an FSA benefit. The FSA contribution limit for 2023 is $3,050, regardless if it's for an individual or a family. The limit for 2024 is $3,200.

What's a high deductible health plan (HDHP)? An HDHP is a health insurance plan that requires the policyholder to cover a larger amount before the insurer starts paying. To be considered an HDHP in 2023, a plan must have a minimum deductible of $1,500 for an individual policy and $3,000 for family coverage.



For 2024, the minimums are $1,600 for individual plans and $3,200 for family coverage.

How does an HSA work?

An HSA has three tax advantages: Payroll contributions are pre-tax, which lowers your taxable income amount.

Earnings grow tax-free.

You can withdraw money tax-free for qualifying medical expenses, as determined by the IRS. If you withdraw funds for nonmedical expenses, they are considered taxable income and are also subject to a 20% penalty. After age 65, you are no longer charged the penalty, but withdrawals are still subject to income tax unless for health-related expenses. Because money in an HSA can be invested and tapped after age 65, it's considered a good tool to build your retirement nest egg. Unlike most FSAs, the balance in an HSA rolls over from one plan year to the next and your account goes with you if you leave your job.

How does an FSA work?

Like an HSA, an FSA reduces your taxable income by allowing pre-tax contributions. However, you can't invest the money you contribute to an FSA and, if you change jobs, you'll lose any balance. In addition, the money in an FSA must usually be spent within the plan year or it's sacrificed. (Some employers may allow employees to roll over a small amount or offer a grace period to use funds before they expire.) Deductions are made from your paycheck throughout the year, but the full election amount is available on day one. If you leave your company before your payroll contributions equal any withdrawals you've made that year, your employer may deduct the difference from your final paycheck.

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HSA or FSA: Which should you choose?

Except for some limited-purpose FSAs that only cover dental, vision or dependent care, you can't contribute to both an HSA and an FSA. So, you'll have to decide which is best for your needs. An HSA is most advantageous if you don't have frequent out-of-pocket medical expenses. Because it rolls over from year to year, your money has time to grow. So, If you do get hit with a large medical bill down the line, your earnings should be able to cover the higher deductible. And, any money you don't spend on healthcare can be accessed in retirement without penalty.



You don't have to be enrolled in an HDHP to open an FSA. So, if you have regular medical expenses, it may make more sense. And, while HSA contributions accumulate through the year, funds from your FSA are available in full at the beginning of your plan year.

Alternatives to HSAs and FSAs

If you don't qualify for either an HSA or FSA, there are still ways to save up for health-related expenses. A high-yield savings account (HYSA) can earn a sizable return while leaving money readily available. You don't have to be enrolled in a high-deductible health plan and, unlike an FSA, an HYSA isn't tied to your employer and won't vanish at the end of the year. Wealthfront's Cash Account HYSA has a competitive annual percentage yield (APY) with no monthly fees and a complementary debit card. It makes it easy to save for multiple goals, so you can assign funds to "medical expenses."

Wealthfront Cash Account Learn More Annual Percentage Yield (APY) 5.00% APY

Minimum balance None

Monthly fee None

Maximum transactions Unlimited transfers and free same-day withdrawals

FDIC insurance coverage Up to $8 million Terms apply. Pros Above-average APY

No minimum balance or deposit

No monthly fee

Unlimited transfers and free same-day withdrawals

FDIC insurance up to $8 million Cons Limited customer support Learn More View More

Another solid option, Synchrony Bank has no fees and no minimum deposit or balance requirements. Account holders are eligible for a free ATM card and Synchrony will refund other banks' ATM fees up to $5 per statement cycle.

Synchrony Bank High Yield Savings Learn More Synchrony Bank is a Member FDIC. Annual Percentage Yield (APY) 4.75% APY

Minimum balance None

Monthly fee None

Maximum transactions Up to 6 free withdrawals or transfers per statement cycle

Excessive transactions fee None

Overdraft fee None

Offer checking account? No

Offer ATM card? Yes Terms apply. Pros Strong APY

No minimum balance or deposit

No monthly fees

Easy ATM access Cons No option to add a checking account Learn More View More

If your primary interest in an HSA is as a retirement savings vehicle, you could open a Roth IRA with a robo-advisor: Betterment can customize portfolios around specific goals or by risk tolerance and time horizon. There are no trade or transfer fees and account holders have access to a high-interest cash reserve and checking account.

Betterment Learn More Minimum deposit and balance Minimum deposit and balance requirements may vary depending on the investment vehicle selected. For example, Betterment doesn't require clients to maintain a minimum investment account balance, but there is a ACH deposit minimum of $10. Premium Investing requires a $100,000 minimum balance.

Fees Fees may vary depending on the investment vehicle selected, account balances, etc. Click here for details.

Investment vehicles Robo-advisor: Betterment Digital Investing IRA: Betterment Traditional, Roth and SEP IRAs 401(k): Betterment 401(k) for employers

Investment options Stocks, bonds, ETFs and cash

Educational resources Betterment offers retirement and other education materials Terms apply. Does not apply to crypto asset portfolios.

Bottom line

HSA and FSA accounts are both meant to pay for health-related expenses not covered by insurance, but they have significant differences in eligibility, contribution limits, investment options and portability.



Consider your situation before deciding to open either one. Catch up on CNBC Select's in-depth coverage of credit cards, banking and money, and follow us on TikTok, Facebook, Instagram and Twitter to stay up to date.

Why trust CNBC Select?

At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every investing article is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of investing. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics. Catch up on CNBC Select's in-depth coverage of credit cards, banking and money, and follow us on TikTok, Facebook, Instagram and Twitter to stay up to date.

Information about the Synchrony Bank High Yield Savings Account has been collected independently by CNBC and has not been reviewed or provided by the bank before publication.

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.