If you are familiar with health savings accounts, or HSAs, you probably know that many HSA providers impose minimum cash balances on their account holders. These minimum cash balances mean account holders must maintain a set amount in cash, typically $1,000 or $2,000, before they can invest additional funds.

You may also have heard minimum cash balances described as a way to make sure account holders have sufficient funds on hand in case they are required to pay out of pocket for a large medical expense. However, rather than benefiting account holders, minimum cash balances act as a hidden cost by needlessly holding funds captive and throttling account holders' ability to grow their savings. Benefits professionals promoting HSAs need to be aware of how minimum cash balances can burden account holders and how they can help relieve that pressure.

The problem: Minimum cash balances' hidden cost

If an account holder's HSA provider requires a $2,000 minimum cash balance, that account holder must keep at least $2,000 in cash before they can invest any additional funds. In addition, most HSA providers' interest rates on $2,000 are low, which means our account holder might only earn $5 in interest that year.