The cryptocurrency industry has provided developers and investors with the opportunity to introduce new financial instruments that provide abundant passive income earning options. Holding cryptocurrencies has provided impatient investors with an opportunity to make gains over the years. However, there are many other ways to increase the crypto asset stack, even in bear markets.
Unlike staking, crypto savings accounts allow individual investors to pool their money by earning interest on the crypto assets they deposit on specific cryptocurrency platforms if they agree to lend their coins or tokens. Crypto-interest accounts are particularly attractive because they pay out significantly higher returns than traditional bank savings accounts, considering that the average interest rate applied through a crypto-savings account can be as high as 7.5%, versus the average 0.06% of savings accounts banking.
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The difference in pricing between traditional savings accounts and crypto accounts is somewhat significant but comes with higher risks associated with the service. Here we will find out how to access crypto savings accounts, interest rates, deposit terms and risks associated with this type of financial instrument.
What is a cryptocurrency savings account?
Cryptocurrency interest calculation is generally a service of a DeFi platform that allows you to earn interest on digital assets that you have deposited and agreed to lend for a return. This service is similar to a savings bank account which will lend your money to other clients or financial institutions for a certain period of time and will give you interest for this service.
By definition, blockchain technology encourages users to become independent from third parties. However, brokers have become a necessary component of the industry that provides crypto savings accounts for those who want to enjoy the benefits of technology without putting in much effort to learn the complex and cumbersome processes.
Other than convenience, these companies will also bear some of the risks involved and ensure that depositors are paid first in case of adverse events such as bankruptcy. Some companies are insurance backed and work with well-established custodians to protect their clients.
How does a crypto savings account work?
Once you deposit your crypto assets into a savings account, you start reaping the benefits from day one. Most of the popular cryptocurrencies can be used in a crypto savings account, the most popular being Bitcoin (BTC), Ether (ETH) and Litecoin (LTC), while many prefer interest rates to stablecoins like Tether (USDT), USD Coin (USDC) and Pax Dollar (USDP).
By depositing your crypto assets into a savings account, you are officially giving the platform the right to use your money for any purpose, from lending it to investing it or accumulating it on your behalf. Primarily, it will be used to lend it to earn high returns, some of which will be paid to you as regular interest payments.
Crypto savings accounts may offer you better rates if you agree to lock your crypto for a while or keep a platform-specific code. Nexo, for example, is increasing interest rates by up to 4% for holders of the platform’s governance token.
How to invest in a cryptocurrency savings plan?
When you want to invest in a crypto savings plan, the first step is to choose the right account for you and start as follows:
Choose a cryptocurrency platform that you trust and offers realistic interest rates;
Transfer cryptocurrencies to this chosen platform;
Follow some simple steps to deposit your crypto assets into a savings account. These steps are usually pretty straightforward, and you’ll be guided through the process through the platform;
Choose whether you want to deposit your assets for a limited period of time or select a flexible time that allows you to withdraw your crypto at any time;
Start earning interest from day one.
As mentioned, there are plenty of platforms to choose from, including well-established cryptocurrency exchanges like Coinbase, with the following indicators of interest rates on fixed savings:
Binance is another popular global crypto platform that offers interest rates on several cryptocurrencies with flexible savings and secured savings options:
An increasing number of financial services companies and cryptocurrency platforms offer these types of accounts. Nexo and Crypto.com are among the companies that offer higher interest rates to cryptocurrency holders who hold their assets away for weeks or months. However, the drawback with this type of savings account is that you cannot withdraw or sell your crypto during that period.
The amount of interest you can earn using a crypto savings account largely depends on the platform and cryptocurrencies you choose to deposit. The interest rate offered by the service will also be driven by market conditions and will usually be paid in the cryptocurrency that you have deposited.