(Money Magazine ) -- Q: I have a large balance in my health savings account. What's the safest way to invest the money and maximize yield? -- Mark Paine, Cincinnati
A: Before you start chasing yields, make sure your bases are covered.
Since health savings accounts (HSAs) are linked to high-deductible insurance plans, you should keep enough in a savings or money-market account to meet your deductible (in fact, many HSAs require this).
To be safe, you should also make sure you have enough resources -- in or out of your HSA -- to pay your annual out-of-pocket maximum, which can run as high as $11,900 in an HSA-eligible family plan, says Devon M. Herrick, a senior fellow for the National Center for Policy Analysis.
With a larger HSA balance, you can take on more risk in the hope of earning a better return. That's especially true if you roll over funds every year.
A recent Fidelity survey found that 95% of the firm's HSA investors spent less than their annual contributions, essentially treating their HSAs as another tax-advantaged investment account.
Last year 12% of employers offered HSAs; 25% of large firms did so. You can put up to $3,050 a year in an HSA as an individual, $6,150 for a family; those 55 and older can save an extra $1,000.
Some HSAs let you buy equities, but consider that riskier path only if you're sure you won't need the money for several years.
A relatively safe way to beat a savings account is to buy a short-term bond fund (recent yields averaged 1.75%). Your principal will dip slightly if rates rise, but a better yield will cushion those losses.
|Overnight Avg Rate||Latest||Change||Last Week|
|30 yr fixed||3.64%||3.64%|
|15 yr fixed||2.76%||2.76%|
|30 yr refi||3.66%||3.69%|
|15 yr refi||2.79%||2.81%|
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