Minimizing fees with Saturna HSA

This year I became eligible to contribute to a Health Savings Account (HSA). After reviewing many web resources, including

I shortlisted three HSA provider options:

  1. The HSA Authority
  2. Lively HSA : LINK to Boglehead discussion.
  3. Saturna HSA : LINK to Boglehead discussion.

Selection Criteria

My primary purpose of having the HSA is for investing. My HSA provider selection criteria include

  • No wrap fees. Any HSA with wrap fee is a non-starter for me. HSAs that have wrap fees are eliminated and not considered.
  • First dollar investing. Several HSAs require you to keep a certain amount of money in a (usually) low paying savings account before you can invest your money or to waive their fees. The amount of money could range from $1,000 to $5,000. To me, this is a “cash drag penalty” on investments. If we assume a yearly portfolio return of 5% to 6%, the “implicit fee” in having each $1,000 kept in cash could be like $50/year. If we do not put a value to the implicit fee, we would not realize how huge this fee could be. For example, HSA Bank offers to waive the total $5.50/month fee if $5,000 is kept in cash. Seriously? The implicit fee for this is like $250/year.
  • Access to low cost funds. I give preference to HSAs with funds that have low expense ratios.
  • Low fees. The lower the monthly or yearly maintenance or account fees, the better.

The HSA Authority

  • First dollar investing.
  • $36/year fee to invest in mutual funds. Investment options include Vanguard S&P500, TSM (both with ER 0.04%), Emerging Mkts (ER 0.14%), EAFE (ER 0.17%), short term bond index (ER 0.07%). Other options include SmallCap, MidCap, TIPS, REIT and Lifestrategy funds from Vanguard.

Lively HSA

  • First dollar investing.
  • $2.50/month for access to TD Ameritrade’s brokerage, with >100 commission-free ETFs (including Vanguard ETFs). Fee apparently is paid from outside the HSA (good).
  • CON: brand new startup.

Saturna HSA

  • First dollar investing.
  • Mutual funds and ETFs are available through their brokerage. Transaction fees: $0 for NTF mutual fund trade, $14.95 for each ETF/stock trade, $24.95 for Vanguard or Fidelity mutual fund trade. LINK to the list of NTF funds at Saturna.
  • Requires a minimum of one transaction per calendar year. Otherwise there is a yearly $25 inactivity fee, which is reduced to $12.50 if the account only holds mutual funds.
  • CON: Lengthy application forms which must be sent in through snail mail.

After reviewing and reminding myself that I would probably be making only one transaction a year, I decided to go with Saturna. However, if I would be making more than one transaction a year, Lively and The HSA Authority are probably better choices.

Fee minimization strategy

Using Saturna, and limiting to one ETF trade a year, the HSA running cost is $14.95/year. However, I realized that by bunching ETF purchases to once every two years, I can save on commission fees even more. The following is one such strategy:

  • Year One: Invest the entire Year One HSA contribution into T.Rowe Price’s S&P 500 index fund PREIX (ER 0.21%). This is a NTF fund (no trade fee, $2,500 minimum, 6-month holding period).
  • Year Two (January): Sell all PREIX, add the proceeds to Year Two contribution and purchase the Schwab International Equity ETF SCHF (ER 0.06%) for a $14.95 trade fee.
  • Year Three (January): Put the entire Year Three contribution and any SCHF dividends into PREIX. Make no change to SCHF.
  • Year Four (January): Sell all PREIX, add the proceeds and any SCHF dividends to Year Four contribution and purchase more SCHF for a $14.95 trade fee.
  • And so on.

Notes

  • Because the NTF fund PREIX has a higher expense ratio compared to the equivalent products from Vanguard or Schwab, there is an implicit fee in using PREIX. Assuming Vanguard’s US LargeCap ETF has an ER of 0.05%, this implicit fee is an ER difference of 0.21% – 0.05% = 0.16%. This fee is applicable one out of every two years (years 1, 3, 5 etc.) and is roughly limited to the yearly contribution amount of around $6,800. So on average, this fee is about 0.5 x 6,800 x 0.0016 = $5.44 / year (this fee could be a little higher, depending on the growth of the fund).
  • The ETF trade fee of $14.95 happens once every other year. On average, this fee is $7.48 / year.
  • Schwab’s SCHF was chosen because it only distributes its dividends once a year in December. In January, this dividend gets invested. On the other hand, if I were to use Vanguard’s VEA or VOO, I would have to deal with Q1, Q2 and Q3 dividend distributions.There is a fee to reinvest dividends from ETFs.
  • There is no fee to automatically reinvest dividends for PREIX.
  • It might appear that I am changing my asset allocation between US LargeCap and EAFE equity every year. In reality, I can make compensating trades in my other tax-advantaged IRAs to account for these changes.
  • There is a transaction every year, meeting the account activity requirement.

Conclusion

The total fee using the above Saturna HSA strategy is approximately $5.44 + $7.48 = $12.92/year. This is lower than either Lively’s $30/year or The HSA Authority’s $36/year.

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