You understand the triple tax advantage. You know HSAs can be retirement goldmines. But one number gets less attention: roughly 90% of HSA accounts hold nothing invested. At the end of 2025, about 4.2 million accounts, around 10% of all HSAs, held invested dollars, according to Devenir. The rest sit in cash earning near-zero interest, year after year. That is a system design problem.
Why Most HSA Platforms Keep You in Cash
Look at how typical HSA platforms work:
- Your contribution lands in a cash account. Instant access. Visible balance. Debit card ready.
- To invest, you must navigate a separate portal, fill out forms, meet a minimum cash threshold (often $1,000-$2,000), and pick from a menu that looks like a relic from the 1990s.
The system is built for cash flow, not wealth building. Platforms earn revenue on debit card transactions, account fees, and monthly investment fees, often 0.03% a month capped at $10. The nudges still point toward spending: Keep it liquid. Keep it spending. Keep it here.
But the math is brutal. $5,000 in cash for thirty years at 1% interest yields about $6,700. The same amount invested at 7% yields over $38,000. That's a $31,000 silent leak, per participant.
The Regulatory Gap Nobody Talks About
In the 401(k) world, the Department of Labor requires plan sponsors to act as fiduciaries. They must offer prudent investment options, monitor performance, and use default strategies like target-date funds.
HSAs? Nothing. No fiduciary duty. No requirement to offer low-cost funds. No requirement to auto-invest excess cash. No requirement to default participants into growth-oriented options.
The IRS governs HSAs as health accounts under Section 223, not retirement plans, even though after 65 the same account works much like a traditional IRA. This regulatory blind spot leaves roughly 9 in 10 participants holding only cash, with no system-level push to do better.
Three Fixes That Would Change Everything
Any modern HSA platform could fix this overnight. I would start with three changes:
1. Auto-Invest by Default
During enrollment, the system asks one question: "Would you like any balance over $500 automatically invested into a diversified growth fund?" The default answer is yes. No forms. No minimum cash hoard. Just a simple toggle that most people keep. This removes the two biggest barriers: inertia and the intimidating "investment election" process.
2. Two-Bucket Intelligence
Instead of one monolithic balance, the platform shows two buckets:
- Short-Term Medical Reserve - automatically funded with a fixed monthly amount (say, $100) held in cash for deductibles and copays.
- Long-Term Health Savings - everything else goes into a diversified investment portfolio.
The participant sees a single total balance. The system handles the split. No manual transfers required.
3. Health-Adjusted Target-Date Funds
A 30-year-old with a high-deductible plan and no chronic conditions should be heavily invested in equities. A 55-year-old with diabetes and a $7,000 deductible needs a more conservative mix with a larger cash buffer. Why isn't anyone building a target-date fund that adjusts based on health risk and deductible level? The data exists inside your benefits system. The technology exists. The gap is regulatory and commercial inertia.
Who Should Stay in Cash
None of this means every HSA dollar belongs in the market. HSAs have two jobs, and for many holders the spending job comes first. More than half of HSAs in EBRI's database paid out a distribution in 2023, averaging about $1,800. If your balance covers next year's deductible and little more, keeping it in cash is the rational move.
The sensible rule is a cash floor. Fidelity's guidance is to hold a cash target roughly equal to your expected annual out-of-pocket costs or your in-network deductible, and invest only the amount above it. The two-bucket fix above works on that principle: protect what you are likely to spend and invest the rest.
What Employers Should Demand
If you sponsor an HSA-eligible health plan, ask your administrator these three questions during your next review:
- What is the default behavior for balances above the cash threshold? If the answer is "sit in cash," that's a problem.
- Do you offer an auto-invest feature with a default allocation? If not, ask why they haven't adopted a practice that's standard in retirement plans.
- What is your participant investment rate? If it's below 15%, your system is failing your people.
The HSA is the most powerful savings vehicle most Americans have access to. But power is wasted when the system is designed to keep it dormant. Make the switch from cash-first to growth-first. Fix the architecture and the rest follows.