Most people don’t know that cryptos also have a savings account equivalent. For more details here-
Cryptocurrencies have proven themselves as a store of value and a hedge against inflation. Many coins have also experienced phenomenal growth, giving them huge investment opportunities. Despite these attractive benefits, many people still choose to put their money in a savings account because of the risk-free interest they offer.
However, most people don’t know that cryptos also have a savings account equivalent, and we’ll learn everything you need to know about them in this article.
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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 provided by crypto exchanges, lending protocols and staking companies like 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. Moreover, just like a standard savings account, your crypto is liquid and (almost) never subject to a retention period.
How do crypto savings accounts work?
Crypto savings accounts have different working models. Some accounts will use the money saved to participate in staking, others will add the coins to lending pools, while some will simply invest them in other projects. These activities have a common goal: to earn interest on your deposited coins. The amount they earn is subject to volatility, but you are usually guaranteed a minimum fixed rate of return.
The retention period may also vary. For example, Binance, the largest crypto exchange in the world, has flexible and locked savings accounts. As the name suggests, flexible savings accounts have no lock-in period. On the other hand, locked economies on Binance typically have a waiting period of 7 to 120 days depending on the token.
How much can you earn with a crypto savings account?
The earnings of a crypto savings account depend on many factors, such as the platform you choose, the coin you deposit, and the type of account (fixed, flexible, etc.). For example, users can store their AXS (the native currency of Axie Infinity, a crypto game to earn) on Binance and earn an estimated APR of up to 20% with a flexible account. However, if the user opts for a fixed account, the interest rises to 25%. Likewise, returns will vary with other coins and platforms.
Benefits of a Crypto Savings Account
1. Passive Income
All financial experts will tell you that passive income is a great way to create and accumulate wealth. If you’re optimistic about the future of cryptos, chances are you already own a certain amount of tokens. With crypto savings accounts, you can earn passive income from your assets and grow your inventory without making further purchases. Some of these savings accounts also offer APY returns, allowing you to take advantage of the power of compounding.
2. Little or no risk
As with regular savings accounts, the risk factor with crypto savings accounts is negligible. As long as you maintain an account with a trusted crypto platform, you don’t have to worry about losing your assets. Some would argue that these platforms are also more secure than bank accounts. They are usually required by law or insured to ensure that depositors’ money is returned in the event of insolvency, such 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 present themselves as the best options. Even if your earnings are minimal, it still means your portfolio will remain in the green until market conditions are favorable again.
4. The Learning Curve
Earning income by investing directly in DeFi protocols and liquidity funds requires some expertise to navigate all the jargon and technicalities. On the other hand, crypto savings accounts usually come with a user-friendly interface and step-by-step guidance. The operation is also known on your regular savings accounts. Therefore, even if you are a beginner, it will not take you long to get started.
Now that you know how crypto savings accounts work, take a moment to check out the various platforms that offer such a service. What can vary is the interest rates they offer and whether there are any hodling agreements. Always choose a platform you are comfortable with, preferably one that has been in the market for a while and has a solid reputation. You should also check their terms and conditions and look for platforms funded by the insurer’s depositors.