Everything you need to know about crypto savings accounts
Of CNBCTV18.com IST (published)
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Most people don’t know that cryptos have a corresponding savings account as well. Find out more about it here-
Cryptocurrencies have proven their worth as a store of value and hedge against inflation. Many coins have also shown tremendous growth, making them budding investment opportunities. However, despite these attractive benefits, many individuals still choose to place their money in a savings account, due to the risk-free rate of interest it provides.
However, most people don’t know that cryptos have equivalent savings accounts as well, and we’ll teach you everything you need to know about them in this article.
What are Crypto Savings Accounts?
A crypto savings account is a service that allows you to deposit and earn interest on your existing tokens. This service is usually offered by crypto exchanges, lending protocols and staking companies such as Binance, Nexo, Coinbase, BlockFi, etc. Essentially, these accounts are a crypto equivalent of your regular savings account. Any crypto you store in such an account earns you interest. Also, just like a standard savings account, your crypto is liquid and (almost) never subject to any holding period.
How do crypto savings accounts work?
Crypto savings accounts have different working models. Some accounts will use the saved funds to participate in staking, others will put the coins into lending pools, while some will just invest them in other projects. These activities have one common goal: to earn interest on your deposited coins. The amount they earn is subject to volatility, but you are usually guaranteed a minimal fixed rate of return.
The holding period may also vary. For example, Binance, the world’s largest crypto exchange, has flexible and locked socked savings accounts. As the name suggests, flexible savings accounts have no lock-in period. On the other hand, locked savings on Binance usually have a vesting period that varies from 7 to 120 days, depending on the token.
How much can you earn with a crypto savings account?
Earnings from a crypto savings account will depend on a number of factors, such as the platform you choose, the coin you deposit, and the type of account (fixed, flexible, etc.). For example, users can store AXS (the native currency of Axie Infinity, a game to earn crypto game) on Binance and earn an estimated APR of up to 20 percent with a flexible account. But if the user chooses a fixed account, the interest rate jumps to 25 percent. Similarly, the return will vary with other coins and platforms.
Advantages of crypto savings account
1. Passive income
Every financial expert will tell you that passive income is an excellent path to wealth creation and accumulation. If you are optimistic about the future of crypto, chances are you already have a certain amount of token(s). With crypto savings accounts, you can earn a passive income on your holdings and build your inventory without making additional purchases. Some of these savings accounts also offer APY returns, so you can take advantage of the power of compounding.
2. Little or no risk
As is the case with regular savings accounts, the risk factor with crypto savings accounts is negligible. As long as you have an account with a trusted crypto platform, you don’t have to worry about losing your holdings. Some would argue that these platforms are also safer than bank accounts. They are usually legally bound or insured to ensure that depositors’ funds are returned in the event of insolvency, as with BlockFi and Nexo.
3. A good option during crypto winters
When the markets are volatile, and not necessarily in your favor, these savings accounts come in as the best options. Even if your earnings are small, they still mean your portfolio will remain in the green until market conditions are favorable again.
4. The learning curve
Earning an income by investing directly in DeFi protocols and liquidity funds requires some expertise to navigate all the jargon and technical details. On the other hand, crypto savings accounts usually come with a user-friendly interface and step-by-step guidance. The work is also known for your regular savings accounts. Therefore, even if you are a beginner, it won’t take long to get started.
Conclusion
Now that you know how crypto savings accounts work, you should take a minute to discover the various platforms that offer such a service. What can vary are the interest rates that they give and whether there are any hodling obligations. Always choose a platform you are comfortable using, preferably one that has been on the market for a while and has a solid reputation. You should also review their terms and conditions and seek out platforms that the insurer’s depositors fund.
