Health Savings Accounts (HSAs) have been available for over two decades, yet most banking executives still treat them as an afterthought. However, it can be a costly oversight to view HSAs as a niche product buried in a benefits brochure.
By the end of 2024, HSA assets had reached nearly $147 billion across more than 39 million accounts, according to Devenir, reflecting a year-over-year asset increase of 19%. Projections are that more than 45 million accounts will hold nearly $200 billion in total assets by 2027.
These are not niche product numbers; these are the numbers of a massively underleveraged deposit channel.
For banks grappling with deposit competition, margin compression, and the constant hunt for sticky, low-cost funding sources, HSAs deserve a second (and much harder) look.
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HSA Advantages that Banks Keep Overlooking
The “triple tax advantage” is well-known in benefits circles: pre-tax contributions, tax-free growth on invested balances, and tax-free withdrawals for qualified medical expenses. No other savings vehicle in the U.S. tax code offers all three simultaneously; not a 401(k), not a Roth IRA, and certainly not a traditional savings account.
And those tax savings are significant even for new account holders. The IRS allows contribution limits of $4,400 for individuals and $8,750 for families in 2026, with an additional $1,000 catch-up for those 55 and older.
But here’s what matters from a banking perspective: unlike Flexible Spending Accounts, HSA balances roll over indefinitely. There is no option for a “use-it-or-lose-it” deadline.
That structural permanence transforms an HSA from a short-term spending tool into a long-duration deposit account – the kind of account that banks covet but increasingly struggle to attract.
Sticky, Growing, and Counter-Cyclical: A Compelling Deposit Engine
What makes HSAs so compelling as a deposit engine extends beyond their growth trajectory. It’s the behavioral profile of the deposits themselves.
HSA holders tend to contribute regularly but withdraw infrequently. Devenir’s data show that while $56 billion flowed into HSAs in 2024, only $42 billion was withdrawn, resulting in a net inflow of roughly $14 billion. Unlike checking accounts, where balances fluctuate with every payroll cycle, HSA funds often remain for years. This is especially true among account holders who treat them as long-term healthcare savings or de facto retirement vehicles.
The investment data reinforces this point. HSA investment assets surged 38% in 2024, reaching $64 billion. The average total balance for accounts with investments was $22,032, or nearly nine times larger than non-investing accounts. When customers invest their HSA dollars, those balances become highly sticky, compounding year after year with minimal withdrawals.
For deposit strategists, the combination of predictable inflows, low attrition, rising balances, and a customer base that’s incentivized to keep funds parked is a dream scenario.
In a rate environment where traditional CDs and savings accounts are aggressively shopped, HSAs offer a comparatively stable and growing funding source.
So Why Are HSAs Still Underutilized?
Despite the market’s impressive growth, the utilization gap remains striking. According to the Plan Sponsor Council of America’s 2025 HSA Survey, only about 75% of employees with access to an HSA actually contribute, meaning one in four eligible individuals leaves money on the table. Only about 9% of all HSA accounts have any invested assets.
Many consumers simply do not understand how HSAs work or how they differ from FSAs. Most balances sit in low-yield cash positions, suggesting that those account holders still view HSAs as a short-term spending vehicle rather than the powerful accumulation tool they really are.
On the institutional side, many banks still treat HSAs as a compliance obligation rather than a strategic deposit engine. Fees eat into small balances, interest rates on HSA deposits lag behind basic savings rates, and the onboarding experience for both commercial clients (employers) and consumers (employees) doesn’t compare well with the polished digital interfaces of fintech HSA providers.
Younger Customers, Longer Relationships
Here’s where the math gets interesting for banking leaders. HSAs disproportionately attract younger, benefits-conscious consumers, exactly the demographic that most banks are struggling to acquire. According to the ABA Banking Journal, employer-affiliated accounts make up 61% of all HSAs, collectively holding about $97 billion. These are working-age adults, often in their 30s and 40s, making regular payroll contributions.
If a bank can capture that customer at the HSA level, it gains a foothold for cross-selling across multiple lines of service. These include checking, mortgage lending, credit cards, wealth management, and ultimately retirement accounts.
Lifetime value is hard to ignore. A 35-year-old who opens an HSA and maxes out family contributions for three decades will accumulate a meaningful balance, not to mention the relationship history that comes with it.
Devenir data shows a clear correlation between account age and balance size; funded accounts opened in 2004 carry an average balance of nearly $30,000. That’s patient capital on the balance sheet, and it compounds both financially and relationally over time.
What Winning Looks Like
The banks and benefits administrators who embrace the HSA as a deposit engine share a few common traits.
First, they treat the HSA as a first-class product, not a regulatory checkbox. That means competitive interest rates, low or no monthly fees, a seamless digital experience, and integrated investment options.
Second, they invest in education for both commercial clients (employers) and consumers (employees). The single most powerful lever for increasing HSA adoption is the employer. Three-quarters of employers now contribute to employee HSAs, and 43% offer automatic enrollment. Banks that partner with employers, providing turnkey enrollment tools and plain-language educational content, will see higher, meaningful activation and contribution rates.
Third, they position the HSA as a “stealth retirement vehicle.” After age 65, non-medical HSA withdrawals are taxed as ordinary income (identical to a traditional IRA distribution), but medical withdrawals remain tax-free. For a consumer already maximizing their 401(k), the HSA becomes an additional tax-advantaged savings tier. Banks that help customers understand this will attract higher-balance, longer-duration accounts.
Strategically, partnering with an experienced solutions provider can pay dividends. Not only do banks need a modern HSA platform, but having a growth partner that prioritizes consultation services, operational support, and education for employers and consumers can position them to win.
The Hidden Giant on the Balance Sheet
The HSA market has grown more than tenfold over the past decade. It now represents one of the fastest-growing categories of consumer deposits in the United States. Yet for most banks, HSAs remain an operational line item rather than a strategic priority.
That disconnect represents both a risk and an opportunity. The risk is that fintechs and non-bank custodians continue to capture share by offering better digital experiences, lower fees, and more sophisticated investment options. The opportunity is that banks, with their existing commercial relationships, branch networks, and trust infrastructure, are uniquely positioned to own this space, if they choose to invest in it.
HSAs offer a rare combination in modern banking: predictable long-term deposits, favorable customer demographics, non-cyclical growth, cross-selling potential, and unmatched tax efficiency. For institutions willing to look beyond the compliance lens and see the deposit engine beneath, HSAs may be the most important growth story in plain sight.
DataPath, Inc. is a leading all-in-one technology and business solutions growth partner for financial institutions and TPAs. The company is a platinum member with the American Bankers Association (ABA). Contact us today to start your HSA deposit engine.