Financial Fundamentals Blog

Understanding the Difference Between HSA and FSA

Woman sitting at her desk reviewing health savings documents and conducting research on her laptop.


We know that health care can be confusing and expensive — and it can be difficult to know what is best for you and your family. One of the most common concerns when deciding on health benefits is how best to save for health care costs.


Should you opt for an FSA or would an HSA be better? Most importantly, what is the difference between HSA and FSA? Let’s take a look at the key differences you need to know so you can make the best decision for you and your family.


What is the Difference Between HSA and FSA?

First, let’s cover the similarities. Both health savings accounts (HSAs) and flexible spending accounts (FSAs) enable you to set money aside for health care expenses in a dedicated account. 


HSAs and health care FSAs can be used to pay for copayments, coinsurance, deductibles and other health care expenses. By setting up these accounts and using them for health care expenses, you can lower your out-of-pocket expenses.


Your HSA or FSA funds are taken out of your paycheck before taxes are taken out, so these funds aren’t taxed and can also lower the amount of your taxable income. That means more of your money goes into your pocket rather than being taxed. Any money you withdraw from either account is also tax-free if used for medical expenses.


HSAs and FSAs are both offered by employers as a part of a benefits package, but you may also be able to open an HSA on your own if you have an eligible plan through your or your spouse’s employer. Now let’s explore the key differences between HSA and FSA.


Carryover of Unused Funds

You can indefinitely carry over money from year to year with an HSA. This is helpful for covering large medical expenses in the future. However, if you need to use the funds in your HSA, don’t hesitate! It’s better to use the funds you’ve built up than to put it on a credit card or personal loan with added interest.


FSA funds, on the other hand, are “use it or lose it.” This means when the new benefit year begins, you’ll forfeit the funds that are in your account. However, some employers may offer a grace period of a few months or allow you to roll over a portion of the unused balance into the next plan year.



HSA availability is determined by health insurance. HSAs are generally only available to health insurance members who have enrolled in a high deductible health plan (HDHP).


FSAs are offered by an employer, and there are three types of accounts:

  • Health care FSA: This FSA will help you pay for health care expenses such as deductibles, copayments, coinsurance and prescriptions.
  • Limited Expense FSA: This can only be used to pay for vision and dental expenses. 
  • Dependent Care FSA: This FSA is specifically designed to help parents pay for dependent care that allows them to work.

It’s important to note that you can’t have both an HSA and a health care FSA.


Ownership of the Account

Your HSA and the funds inside it belong to you forever — even if you leave your job. FSAs, however, are owned by your employer. If you leave your job and have an FSA, all funds in the FSA are forfeited.


Access to Funds

If you get an FSA, the amount you want to contribute is available to you at the start of the plan year. For example, if you decide you want $3,000 in your FSA, that entire amount is in your account on the first day of your plan year. HSAs, on the other hand, only accumulate as you contribute funds.


What Should You Consider Before Enrolling in an HSA or FSA?

If you’re eligible for both an FSA and HSA, it’s important to consider the above points and how they fit into your financial situation and health. For example, if you know you’re going to have a large medical expense within the following year, an FSA might be the best option because the amount you want to contribute is available immediately.

Make Sure Your Medical Expenses Are Covered

Unexpected medical expenses can be extremely stressful. Make sure you’re prepared by setting aside funds for medical care by exploring 7 17 Credit Union’s health savings account offering.