Cryptocurrencies have continuously proved they are a way of storing wealth with the upside of gaining value. Since their onset, most coins have increased in value, making them viable investment opportunities.
Yet, despite the benefits you can derive from trading crypto, you can place your money in a savings account and benefit from the risk-free interest they provide.
If you want to boost your crypto investment, a crypto savings account could be the best way to increase your rate of return.
The accounts offer you more safety than a credit union or a bank. Before investing, it would be best to understand how crypto savings accounts work and their advantages and disadvantages.
This guide will go through every important detail you need to know about a crypto savings account.
What Is a Cryptocurrency Savings Account?
A crypto savings account is a type of account that allows you to deposit your crypto assets and pays you interest in exchange.
Your crypto assets gain value when in a savings account, unlike in a wallet. It is easy to withdraw your holdings like in a regular savings account, but the rules will vary depending on the type of account and crypto exchange.
How Do Crypto Savings Accounts Work?
Cryptocurrency savings accounts were created due to people’s challenges when interacting with crypto protocols.
A crypto savings account is an excellent solution if you want to earn interest on your crypto and not let it sit without adding value. These accounts work in the same manner as savings accounts with conventional banks.
The company invests, lends, and stakes crypto on your behalf before paying you a cut of the profits as interest payments.
Most cryptocurrency exchanges offer cryptocurrency savings accounts. Also, companies such as BlockFi and Nexo offer these savings accounts.
They differ in the interest rates they provide for users and the terms of paying the interest, such as regularity of payments, annual returns, and lock-up periods.
Block Fi is among the lending companies and has attracted $10 billion worth of assets from more than a million clients.
The company offers up to 11% APY rates, while popular coins such as ETH and BTC have lower interest rates of up to 3%. On the other hand, stable coins can have interest rates of up to 11%, while altcoins have rates of up to 10%.
Why Should You Consider a Crypto Savings Account?
De Fi allows everyone to access services only available to institutional lenders in a traditional setting. They offer greater returns than savings accounts, with up to 20% yields. Yet, these accounts are not beginner-friendly
So, why should you settle on a savings account over a De Fi protocol? Well, savings accounts offer convenience, and they handle some of the risks.
For instance, if BlockFi loses money to dodgy borrowers, it will pay depositors first if it faces insolvency. Insurers back the companies, and they work with established custodians.
Some De Fi protocols may not offer the same level of security to your investment as savings accounts.
For instance, the Anchor protocol, which provides yields on UST deposits, started struggling when the tokens went down. It cut the yield from a significant sales slash.
Advantages of a Crypto Savings Account
Below are some of the advantages of a cryptocurrency savings account.
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You get the opportunity to diversify.
You spread risk among your investments by investing your crypto alongside bonds, stocks, and savings accounts. You reduce the impact of when certain assets end up losing money.
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High-interest rates.
The rates offered on cryptocurrency assets are higher than those in traditional savings accounts. Yields on crypto savings accounts can go as high as 10% APY, compared to 0.08% APY for a regular savings account.
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Flexibility.
Crypto savings accounts offer the flexibility of transferring your crypto when needed. You also have the luxury of deciding the crypto you can deposit.
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Passive income.
Cryptocurrency savings accounts allow you to earn passive income on your holdings.
You build on your stockpile without making any further buys. Some of the savings accounts offer APY returns that allow you to benefit from compounding.
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Little to no risk.
The risk with crypto savings accounts is negligible. Companies such as Nexo and Block Fi are insured to ensure you get your investment back in case of insolvency.
The Cons of Cryptocurrency Savings Accounts
Below are some of the challenges of crypto savings accounts.
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Volatility.
Crypto assets have high levels of volatility, and the value could shift at any time. You spread risk among your investments whenever interest rates of crypto savings accounts are affected by the return may be lower than expected.
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Security risks.
Crypto is often subject to scams and fraud. There is also a lack of legal protection, which increases the risk further. The crypto exchange you choose may have a lower security level.
Wrapping Up
Crypto savings accounts are an excellent way to get risk-free interest on your investment. You can boost your cryptocurrency savings without having to worry about trading.
Furthermore, some companies secure your investment with insurers, so you don’t stand to lose money. Please take your time to go through some of the platforms with crypto savings accounts now that you understand how they work.
Always settle for the one you are comfortable using, preferably one that has been around for a while. Ensure you go through their terms and conditions.
