Which Is Better? – Health Savings Accounts Vs. Flexible Spending Accounts

We had a question recently from one of our members about the differences between a Health Savings Account and Flexible Spending Accounts. We addressed it during class but we wanted create a simple post for those of you who have ever wondered about these common terms.

If the terms HSA and FSA are a little confusing to you don’t worry – you’re not alone. Most people we have spoken with either have a vague idea of what the differences are, but not a firm grasp.

There are many articles on the topic, but they are written in language that isn’t clear and easy to follow. Our goal with this one is to change that. We will explore each plan, explain their differences and help you decide which one’s best for you.

What is a Health Savings Account?

A Health Savings Account is the best choice if it’s an option for you. It allows you to save money for medical expenses that are tax-free and accumulates over time.

You do not lose your investment if you don’t use it in a calendar year which can be a concern for many of us. If not needed, the investment carries over into the next year and you can continue making further investments into the fund the next year. Unfortunately, not everyone qualifies for an HSA.

How is a Health Savings Account Tied Into a High Deductible Plan?

Before you can qualify for an HSA you have to be enrolled in a High Deductible Health Plan or HDHP. This is an intimidating prospect for many as it does require a significant investment.

The advantage is you never lose access to that money. If you don’t use it in the current year, you can use it in the next one or if you arrive at retirement without using funds in your HSA, you can withdraw them and use them as you like tax-free.

Do I Want a Health Savings Account?

The simple answer is yes – you want an HSA. If one is available to you and you can afford the required investment, it is worth it for peace of mind and potentially as extra retirement income.

As your investment grows, it remains tax-free as long as it remains in the fund. When you withdraw funds to use them on qualified medical expenses there are no extra taxes.

What is a Flexible Spending Account?


A Flexible Spending Account is available to anyone, even when they don’t have access to HDHP. They work with any health plan and employers often offer them to employees in their benefits package. They are used for medical expenses, just like an HSA.

Is a Flexible Spending Account a Good Alternative to a Health Saving Account?

An FSA isn’t better than an HSA, but for many, it’s the only option. It’s a good plan – it just won’t help you save for retirement. Any funds not used in a calendar year are lost. They can’t be part of your long-term savings plan.

What’s My Best Overall Option?

If you have the option, the Health Savings Account is your best option. Yes, there are more upfront costs, but the long-term benefits are worth it. If you are not eligible because you do not have a High Deductible Health Plan, the Flexible Spending Account is a good alternative.

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