How to set up a separate savings account for mental health costs

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  • During the pandemic, there has been an uptick in those reporting symptoms of anxiety or depression. 
  • A separate savings account for your mental health expenses can help you prepare financially.
  • Or open a health savings account, which lets you set aside money for health costs, if you’re eligible.
  • Compare savings account rates & offers in your area »

The COVID-19 pandemic has taken a considerable toll on the country’s mental health over the past year. Budgeting for mental health care expenses like therapy and medication may be more important now than ever.

According to a recent study by the Kaiser Family Foundation, about four in 10 adults have reported symptoms of anxiety or depression during the pandemic. This figure is up from the roughly one in 10 adults who reported the same symptoms from January through June 2019.   

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This statistic represents an uptick in mental health problems across the country — a challenge exacerbated by people also losing their jobs and health insurance. 

If you’re looking for the best way to combat this issue, you may want to consider a special savings account to pay for the cost of therapy, medication, and other mental health expenses. You can automatically direct a percentage of your paycheck to your savings account, so you can start saving without even thinking about it.

A separate savings account will make it easier to allocate your money, and you’ll be able to remove the temptation of spending on expenses not related to your mental health. It may also help alleviate guilt or anxiety about spending money on your mental health.

How to open a savings account

If you’ve never opened a savings account, you’ll have a lot of options to choose from. Start by considering what you want from a savings account.

Would you prefer a brick-and-mortar bank or an online bank? Are you looking for excellent customer service? Is a great mobile app important to you?

It might help to make a list of all the pertinent information you’ll need to make your decision and start ruling out institutions from there. If you don’t know where to start, we’ve compiled a list of the best savings accounts and the best high-yield savings accounts that can help point you in the right direction. 

What to consider when opening a mental health savings account

You can often find the best savings accounts at online banks because they frequently come with lower fees and higher interest rates than brick-and-mortar banks. These high-yield savings accounts earn many multiples more than the national average savings APY of 0.04%. These accounts also have online or mobile app access and are FDIC-insured up to $250,000. 

Some accounts make it easy to track what you’re saving toward — like Ally with its built-in savings bucket feature. (You could label your buckets “Therapy” and “Medication,” for example.) But if your bank or credit union doesn’t have that feature, you may consider opening a separate savings account specifically for mental health expenses.

Most savings accounts limit the number of transfers and withdrawals to six per statement cycle, though banks may continue to waive this requirement during the COVID-19 pandemic. 

If you plan to use this account to pay for monthly mental health expenses, keep in mind that you’ll likely deposit to and withdraw from this account multiple times per month. Plan when you’re going to make your transactions and keep an eye on your monthly limit. 

Savings account vs. CD or money market account

A savings account is probably a better place to store mental health expenses than a certificate of deposit. A bank will usually only let you deposit money once when you set up a CD, and withdrawing money before the term is over usually comes with a penalty. With a savings account, you can deposit money as you please and withdraw cash up to six times per statement cycle.

While you can lock in an interest rate with a CD, you also agree to part with your money for a more extended period. A savings account has a variable interest rate, but it’s probably the ideal way to go if you need your money sooner. 

A money market account and a savings account are similar savings vehicles that offer solid rates on your money. However, money market accounts often come with checks or a debit card, making it more tempting to spend your savings on expenses outside of mental health costs.

What is a health savings account?

A health savings account is a particular type of savings account that lets you set aside money for health costs. You’re eligible for an account if you have a high-deductible health plan, defined by the IRS as at least a $1,400 deductible for an individual or $2,800 for a family in 2021. 

For 2021, contribution limits are $3,600 for an individual and $7,200 for a family. As a bonus, there’s a $1,000 catch-up contribution for those 55 and over.

If you are under 65 and take out the money for any reason other than a qualified medical expense, you’ll pay ordinary income taxes on the withdrawal and a 20% penalty. If you think you might need the money for something other than mental health expenses, it may be better to go with a regular savings account instead. 

Contributions to an HSA are federally tax-deductible and can be invested, growing tax-free. Once you need to withdraw funds to cover mental health or other medical expenses, those funds will stay untaxed. 

You can use an HSA to pay for things your insurance doesn’t cover, such as copays, deductibles, or the cost of your counseling appointments. Most mental health care expenses are typically HSA-eligible, including behavioral counseling, psychiatric hospitalization, prescription medication, and more. 

Your money rolls over from year to year, so if you don’t use it, you don’t lose it. Additionally, you can use this money to pay for health services even after you’ve lost your job or insurance, so it could be a good safety net in the case of a financial emergency. 

But saving via an HSA has an important caveat: If you are under 65 and take out the money for any reason other than a qualified medical expense, you’ll pay ordinary income taxes on the withdrawal and a 20% penalty. If you think you might need the money for something other than mental health expenses, it may be better to go with a regular savings account instead. 

Whatever savings vehicle you use to set aside money for mental health expenses, the most important thing is that you are getting the help you need. 

Ryan Wangman is a reviews fellow at Personal Finance Insider reporting on mortgages, refinancing, bank accounts, and bank reviews. In his past experience writing about personal finance, he has written about credit scores, financial literacy, and homeownership.

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