A health savings account (HSA) and a flexible savings account (FSA) are both tax-advantaged savings accounts that help you pay for out-of-pocket medical expenses. To contribute to an HSA, you must be enrolled in a high-deductible health plan. To contribute to an FSA, you can have any type of health plan but your employer must offer an FSA as a benefit. Here’s a closer look at the similarities and differences between FSAs and HSAs and how to choose between them.
HSA and FSA, Explained
A health savings account (HSA) is designed to help individuals with high-deductible health plans (HDHPs) save for medical expenses. Contributions to an HSA are tax-deductible (or deducted from your paycheck pretax), and the funds can be used for a wide range of qualified medical expenses. HSAs also offer investment options and grow tax-free. In addition, withdrawals for qualified expenses are tax-free.
In 2024, a health plan is considered an HDHP if it has a minimum deductible of $1,600 for individual plans and $3,200 for family coverage.
A flexible spending account (FSA) is a benefit offered by employers that allows employees to set aside pretax dollars for eligible healthcare expenses. Unlike HSAs, FSAs do not require an HDHP. However, FSAs typically have a “use-it-or-lose-it” rule, meaning that any unused funds at the end of the plan year are forfeited unless your employer offers a grace period or a certain amount to roll over.
If you leave your job, you lose your FSA unless you’re eligible for FSA continuation through COBRA.
Differences Between HSA and FSA
Even when you have health insurance, you may run into medical expenses that your plan doesn’t cover, such as copays, eyeglasses, dental expenses, medications, diagnostic tests, and hospital fees. Both HSAs and FSAs allow you to set aside pretax money to cover these costs. But there are some key differences between them. Here’s how these two types of savings accounts compare at a glance.
| Feature | HSA | FSA |
|---|---|---|
| Eligibility | Must have a high-deductible health plan | No specific health plan requirement |
| Ownership | Account owned by the individual | Account owned by the employer |
| Contribution Limits | $4,150 for individuals, $8,300 for families (2024) | $3,200 per year (2024) |
| Funds Rollover | Unused funds roll over year to year | Generally, “use-it-or-lose-it” policy |
| Portability | Remains with the individual if they change jobs | Typically not portable |
| Investment Options | Can be invested in stocks, bonds, and mutual funds | No investment options |
| Tax Advantages | Contributions and earnings aren’t taxed; distributions are tax-free if used for eligible medical expenses. | Contributions are pretax; distributions are tax-free and can only be used for eligible medical expenses. |
| Contribution Changes | Can change contribution amounts anytime | Contribution amount is typically set at the beginning of the year |
| Access to Funds | Funds are available as they are deposited | Full annual election amount available from the start of the year |
Similarities Between HSA and FSA
Despite their differences, HSAs and FSAs share several similarities:
• Funds from either type of account can be used for qualified medical expenses.
• With both accounts, you can save significantly on medical expenses due to tax advantages.
• Employers are allowed to contribute to both HSAs and FSAs (though this is not common with FSAs).
• You can access funds immediately with either type of account. With an FSA, however, you’ll have access to full elected contribution at the start of the year.
Recommended: HSA vs HRA: Main Differences and Which Is Right for You
Get up to $300 when you bank with SoFi.
No account or overdraft fees. No minimum balance.
Up to 4.20% APY on savings balances.
Up to 2-day-early paycheck.
Up to $2M of additional FDIC insurance.
Can You Have an HSA and FSA at the Same Time?
Generally, no. However, there is one exception: If you have a limited-purpose FSA (LPFSA), which only covers dental and vision expenses, you can contribute to both an HSA and an LPFSA. This allows you to put more pretax dollars aside for your healthcare expenses than you could with an HSA alone.
Just keep in mind that you can’t “double dip,” meaning you cannot get reimbursed twice for the same expense — you must decide which account you want to use for reimbursement.
Recommended: HSA vs. HMO: What’s the Difference?
How Do You Choose Between an HSA and FSA?
Choosing between an HSA and FSA depends on your healthcare needs, financial situation, and employment status.
Scenarios When You Should Consider an HSA
• You have a high-deductible health plan. If you have an HDHP, you are eligible for an HSA. The tax advantages and ability to save for future healthcare expenses can make opening an HSA a smart choice.
• You’re interested in long-term savings. HSAs allow you to roll over unused funds year to year, making them ideal for long-term healthcare savings. And at age 65, you can treat an HSA like a traditional 401(k) or IRA — you can withdraw funds for any reason, though you will pay taxes on any funds not used for qualified medical expenses.
• You want to grow your healthcare savings. HSAs offer investment options like stocks, bonds, and mutual funds.
• You want to be able to take your healthcare savings with you if you leave your job. HSAs are portable and remain with you even if you change jobs, providing consistent coverage regardless of employment status.
Recommended: 15 Easy Ways to Save Money
Scenarios When You Should Consider an FSA
• You don’t have (or want to enroll in) an HDHP. FSAs do not require a high-deductible health plan, making them accessible regardless of current health insurance.
• You have fairly predictable healthcare costs. If you’re able to anticipate regular healthcare expenses each year, an FSA can help you save money by using pretax dollars for these predictable costs. If you over-contribute, however, you forfeit any unused balance (unless your employer allows a grade period or a certain amount to roll over).
• Your employer offers FSA contributions. Some employers offer contributions to FSAs, providing additional savings and making FSAs a valuable benefit.
• You want to have immediate access to your healthcare savings. FSAs provide immediate access to the full annual contribution amount at the beginning of the year, which can be beneficial for upfront medical expenses.
The Takeaway
Both HSAs and FSAs offer valuable tax advantages and can help you manage healthcare costs, but they cater to different needs and situations.
If you have a high-deductible health plan and want long-term savings with investment opportunities, an HSA can be a great choice. On the other hand, if you don’t have a high-deductible health plan and your employer offers an FSA, you’ll likely want to take advantage of this benefit. An FSA can help you save for (and save money on) healthcare expenses in the coming year.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
FAQ
Is it better to have an HSA or FSA?
It depends on your healthcare plan and employment situation. A health savings account (HSA) can be a good fit if you have a high-deductible health plan (HDHP), since it offers higher contribution limits and allows you to carry funds forward. An FSA can work well if your employer offers this benefit, you do not have an HDHP, and you have predictable healthcare expenses (since these plans are often “use-it-or-lose-it”).
Is it good to have both an HSA and FSA?
Generally, you cannot contribute to or spend from a health savings account (HSA) and a flexible spending account (FSA) simultaneously, as both accounts are designed for medical expenses and have overlapping benefits.
However, there is one exception: You can have an HSA and a limited-purpose FSA (LPFSA) at the same time. An LPFSA specifically covers dental and vision expenses. This combination can be beneficial if you have significant dental and vision expenses in addition to regular medical costs, providing comprehensive coverage and enhanced tax advantages.
What happens if I switch from an HSA to an FSA?
If you switch from a health savings account (HSA) to a flexible savings account (FSA), you can no longer contribute to your HSA once your FSA becomes active. However, you still own the HSA and can use the remaining HSA funds for qualified medical expenses. In addition, the funds in your HSA will continue to grow tax-free.
Can I have an HSA if my wife has an FSA?
If your wife’s flexible savings account (FSA) is a general-purpose FSA, which covers a range of medical expenses, you cannot contribute to a health savings account (HSA). However, if her FSA is a limited-purpose FSA (LPFSA), which only covers dental and vision expenses, you can contribute to your HSA.
It’s important to review the specific rules and eligibility criteria for both accounts and coordinate with your spouse to optimize your tax savings and healthcare benefits.
Photo credit: iStock/zimmytws
SoFi members with direct deposit activity can earn 4.20% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.
As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.20% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 10/31/2024. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.
SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2024 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
SOBK-Q224-1920649-V1