What You Need to Know About a Family Savings Account (FSA)

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When it comes to having savings for long-term planning or for emergencies, not everyone has a plethora of funds on reserve.

A 2021 Federal Reserve report revealed that, if faced with an unexpected expense of $400, close to 15% of Americans surveyed said they would put it on a credit card, 9% would borrow from a friend or family member, and 12% would not be able to pay for the expense right now at all. With inflation on the rise, making any purchase, much less saving for your child’s education or buying a home, can seem extremely daunting.

A family savings account (FSA) can be a great option for low-income families to build a savings reservoir. FSAs—not to be confused with a flexible spending account from your employer—can help families save for these specific uses.

If your state or municipality offers an FSA program or similar incentivized savings plan, here’s what you need to know about eligibility and if it’s going to help you reach your financial goals.

What Is an FSA and Who Is Eligible?

Christopher Liew, CFA charterholder and founder of Wealth Awesome, explains that an FSA program helps low-income households save money and prepare for the future.

“The money you save and put into the account is matched up to a certain dollar amount,” Liew explains. “[This allows] the account holder to save more money over a shorter amount of time.”

Time limits and minimum savings contributions are often involved. The period can range anywhere from 12 to 24 months or more, with an average minimum of around $40-$60 deposits a month. An organization or government entity agrees to match these contributions up to a certain value, so that FSA holders progress faster in meeting their savings goals.

Though FSAs are only offered in certain states and municipalities, many places have similar matched savings account programs under different names, such as Incentivized Savings Accounts or Individual Development Accounts (IDAs). These common alternatives are available in almost every state.

Both low-income families and individuals are eligible for an FSA, though specific eligibility requirements might vary by state and organization and are tied to income levels. The larger the size of your family, the greater the income limit. For example, to qualify for an FSA in Pennsylvania, your income level must be at 80% of the area’s median income level or less.

How Can Funds Be Spent?

Funds saved in an FSA can only be used for specific purposes. “The funds are held by the institution and cannot be withdrawn,” Liew says.

Your options will depend on the agency and region, but often this money can only be spent on funding a small business, paying for post-secondary education, or purchasing/repairing a home. 

What Are the Pros and Cons?

Like any other savings account, an FSA has its pros and cons, and may not be the best fit for all households. Melanie Musson, a finance expert with Clearsurance, says that the primary goal of these programs is to serve an underbanked community and to help people establish good savings habits that will continue throughout their lives.

Liew adds the main benefit of an FSA is that you save money a lot faster than you otherwise might. An FSA helps families and individuals work towards life-changing purchases or education pursuits while ideally alleviating financial difficulties over the long-term. Often financial education components are connected to FSA programs, which can provide tips on how to save money, plan, or budget. This kind of help and support is integral to staying on track in achieving major financial goals.

There are, however, a few limitations to FSAs.

Musson notes that some programs have a fee to either start and/or end the program. Additionally, the accrued funds can only be used for a few specific investments. Liew also explains that some FSA programs set limitations on the amount of money they’ll match, so it is important to be mindful of that if you plan to contribute more than the minimum amount.

Always be sure to check if receiving matched funds will affect your eligibility for other assistance programs, like food stamps, affordable housing, or loan forgiveness.

If your family relies on other kinds of income-based assistance, be sure to discuss this with an FSA program manager before opening an account.

A Word From Verywell

Building a savings nest can pose a great deal of challenges, especially during a time of inflation. Family Savings Accounts (FSA) can offer a solution for some households who meet the appropriate criteria. If you're thinking about opening an FSA, be sure to speak with a financial advisor to determine whether or not it's the right answer for you.

7 Sources
Verywell Family uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Federal Reserve System. Economic well-being of U.S. households in 2020.

  2. Forbes. Why is inflation rising right now?.

  3. Healthcare.gov. Using a flexible spending account (FSA).

  4. Women's Opportunities Resource Center. Family savings account program.

  5. All-In-Cities. Incentivized savings accounts.

  6. Prosperity Now. Find an IDA program.

  7. Femme Frugality. What is a Family Savings Account?

By Nafeesah Allen, PhD
Dr. Nafeesah Allen is a migration scholar and multicultural communications expert, who transformed trauma from pregnancy discrimination into a new relationship with parenting, wealth, and serial entrepreneurship. Leveraging over 15 years of editorial experience, she has a passion for crafting diverse stories that challenge what we think we know about identity, money, and cultural iconoclasts. She is an expat wife and the proud mom of third-culture kids.