A crypto savings account can help you increase your investment yield by leveraging the volatile crypto market. The rise of bitcoin investing in the last few years has also created a rise of several different crypto account types in response to the explosion in demand.
Crypto savings accounts have some differences from traditional banking and do not offer the same level of security you would expect in a traditional savings account. Nonetheless, the reward of higher yields is enough to attract a big slice of the crypto investment space.
Table of Contents:
In this article, we will speak about the difference a few different types of accounts and some of the best crypto savings account out there today.
Crypto savings accounts provide a yield that is going to be based entirely on your crypto holdings with several crypto banks offering yields that are many times over a traditional fiat currency account.
Even though these are called savings accounts, they are in fact, investment accounts. By placing your crypto in an account you lend out your keys to an exchange that will invest your money out. The interest paid the exact structure of the arrangement will vary depending upon the exchange.
If you own crypto then you use a form of a wallet to hold your coins. There are many different types of wallets, the two most basic are hot wallets and cold wallets which allow coins to be stored both online and offline.
Whereas with crypto savings accounts, when you deposit coins, they are all held digitally and you give up access to your keys which allows crypto exchanges to lend your cryptocurrency money (crypto) elsewhere.
Wallets are more for holding and storing whereas a savings account can be used to collect interest. Some might confuse the term crypto savings account with a crypto wallet but there is a fundamental difference between them. Crypto wallets are used to store and protect your crypto assets, while a crypto savings account is primarily used as a means to earn interest on any crypto assets stored in the account.
A crypto savings account is a great way to earn money while investing in cryptocurrency. The interest rate you get can vary depending on the amount of time your funds are invested for, but will always be higher than what's available from traditional banks or other investment accounts like stocks and bonds.
So while you can earn interest with a crypto savings account, you can not earn any interest with a crypto wallet
See more: Offshore Bitcoin Wallet
There are a few differences between a crypto savings account and a traditional bank account.
All US-based bank accounts come with $250,000 of FDIC insurance policy, which means that if the bank goes under, your money is insured up to 250,00USD.
You probably guessed it, but there is no federal insurance for crypto savings account.
In a traditional savings account, you have complete control over your money. In a crypto-based savings plan, you essential give money to the platform and they lend your money out and promise to pay you back for the crypto they borrowed.
This is actually similar to many banks; though most of these types of banks are deemed "investment banks" though there is less of a distinction these days as many banks will actually invest your money, are not required to physically hold your money, nor hold adequate capital reserves to cover deposits.
Interest for crypto accounts ranges from 5-8% which is several multiples higher than your average neighborhood bank which even at a high yield account will only get you 0.52%.
See more: Crypto-Friendly Banks
According to experts, crypto savings accounts work similarly to traditional bank accounts because in both cases your savings account provider gives you interest on the deposited funds which it uses to loan out to borrowers.
Following are some distinctions and a few underlying risks associated with a crypto savings account that traders should know:
The following is a list of top-performing crypto savings accounts:
If you are new to the cryptocurrency custodial scenario then Coinbase could be the place for you to open a secure crypto savings account.
With nearly 56 million verified users and $223 billion worth of crypto assets on its platform, Coinbase has become more of a brand name for holding and trading crypto.
Its digital wallet offers you up to 1.25% on USD coins with fewer restrictions when it comes to withdrawing your funds.
Gemini platform is synonymous with security among all those who care more about the safety of their crypto holdings. Gemini provides its custodial clients with an ultra-secure, offline, cold storage system.
The annual yield percentage on this platform falls between 1.54% to 7.4% and it depends on which cryptocurrency is stored. Gemini uses only a fraction of the client’s funds in insured hot wallets.
Their service offers significant interest rates that apply to a wide range of cryptocurrencies including 26 altcoins and 8 stablecoins like Tether and TrueUSD.
Daily interest rates on crypto.com can reach up to 6.5% for non-stablecoins and provides approximately 12% interest if users invest stablecoins.
Rates on this platform that allows withdrawals anytime, depending on the duration of your cryptocurrency deposits.
This platform comes with $100 million in insurance that is kept aside to protect users’ investments in case of a financial disaster.
The best thing about opening crypto savings account with Nexo is that it offers daily interest payments. Clients can get up to a 12% yield interest on this platform yearly. Nexo is popular for its 24-hour lockup plans and has over a million users.
This company is valued at a whopping $3 billion after receiving funding recently. Customers get a 6% interest rate on Bitcoin and 8.6% for stablecoin deposits.
If you are interested in retail as well as institutional products then give BlockFi a try. They also have a risk management system that protects clients’ funds.
If you are looking for a high yield investment account, then perhaps a crypto savings account might be for you. These accounts do come with some risk, as they are still prone to the fluctuations of the crypto market which can swing rapidly.
This just means it's wise to have one eye on the market so that you can monitor your holdings. It's only a matter of time before crypto savings accounts start to become the traditional savings account.
Why You Need A Plan B
Threats to Your Assets
Global Diversification Planning