Health savings accounts and flexible spending accounts are both tax-advantaged financial tools that can help you save money on your medical expenses. 

These accounts can be great vehicles to put aside money for both medical emergencies and routine health-care expenses. But each account also has unique benefits and drawbacks.

And, you may not have the luxury of choosing between one or the other account. You need a high-deductible health plan to be able to open an HSA and you need an employer who sponsors FSAs be able to fund one.

But if you do have the option to open one or both of these accounts, here's what to know.

The key differences between HSAs and FSAs

The key differences between HSAs and FSAs are how they're funded and to whom each account is available.

"A health savings account is associated with a high-deductible health plan, and you can have it through your employer or you can have it as a self-employed individual on your own," Charlene Rhinehart, a certified public accountant and personal finance editor at GoodRx, tells CNBC Make It.

Funds in your HSA roll over each year and you can take your account with you if you change jobs, Rhinehart says. When the latter happens, you'll have the option to leave your HSA where it is, roll it into a new employer-provided account or roll it into a new HSA provider altogether, according to Fidelity.

There are contribution limits, however. In 2024, individuals are able to contribute up to $4,150 to their HSAs. Families covered under the same plan can contribute up to $8,300. People age 55 and older can contribute an additional $1,000. 

In general, HSAs come with more flexibility since you can open an account regardless of your employer, as long as you have a high-deductible health insurance plan. Additionally, you have the ability to invest your HSA funds, and if you never wind up using them, they'll be transferred to your beneficiary after your death.

"[An] FSA is completely different in that manner," Rhinehart says. "The funds do not roll over every year, there is a deadline [and it's] a 'use it or lose it' type of account."

Some FSA funds may roll over into the new year, but it depends on your plan sponsor, according to FSAStore. Plan sponsors can allow FSA users one of the following options:

• The ability to rollover up to $640 for plans beginning in 2024 
• A 2.5 month grace period allowing account holders to use the previous year's FSA funds until March 15 of the following year

There are FSA contribution limits as well — $3,200 for individuals in 2024, according to the Internal Revenue Service. If you're married or have dependents, you can use funds to pay for their health-care costs as well, but the contribution limit remains the same. If your spouse is able to open their own FSA, they can contribute up to $3,200 to their account, according to Healthcare.gov.

Both FSA and HSA contributions use pre-tax dollars, and when you spend the funds on qualified medical expenses, those are also tax-free. If you invest your HSA funds, the earnings are also tax-free, giving HSAs a triple tax advantage.

The qualified medical expenses you can use your HSA or FSA funds are mostly the same. You can use the funds to cover co-pays for doctor's visits, over-the-counter and prescription medications, glasses, dental care and more.

"Your HSA custodian doesn't micromanage your HSA expenses like they will your FSA," Rhinehart says. "You will have to submit receipts to your FSA custodian in order for them to reimburse you." 

She says it's a good idea to keep receipts when you use your HSA funds just in case you're ever audited.

Which account is right for you?

An HSA comes with more benefits than an FSA, but requires you to maintain a high-deductible health plan. Under these insurance plans, your monthly premium will be lower than on a traditional plan, but you pay more out of pocket before your insurance provider starts covering costs.

"Think about it as a question of when you want to pay your [medical] costs," Rhinehart says. "You can pay a higher cost every month when you pay your insurance premiums and that means when something comes up, your insurance company is going to cover more of the cost immediately."

If you're a generally healthy person and don't visit doctors often, Rhinehart says a high-deductible plan may be better suited for you. On the other hand, if you or your child have frequent medical expenses, it may be wise to go with a standard plan. 

With a standard plan, you can still supplement with an FSA if available to you, so you're able to reap some tax savings when it comes to your health-care costs.

"You really have to take into consideration what has happened this year, what you expect to happen next year and what your financial situation looks like to choose the best health plan for you," Rhinehart says.

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