Cryptocurrency Savings Accounts: growing your money.

in #crypto-savingsaccount2 months ago (edited)

Cryptocurrency Savings Accounts: growing your money.

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Fiat Bank versus a Cryptobank

A cryptocurrency savings account works like a traditional Bank savings accounts. But there are important differences to be aware of, so let us review them.

First, loaning out your money

When you deposit money into a traditional savings account, you give the bank permission to loan out the money in your account to 3rd parties. In exchange, the bank provides you with a set percentage of interest each year.

When you open a cryptocurrency savings account, you invest your funds into a digital currency like Bitcoin or Ethereum. The savings account provider will then loan out your cryptocurrency to borrowers, providing you with a percentage of interest in exchange.

Second, insuring your funds

Traditional fiat banks have insurance from the Federal Deposit Insurance Corporation, commonly called the FDIC. The FDIC insurance guarantees that, even if your bank loans your deposited money, and the loans go bad, or default or the bank fails, your funds are protected. You won’t lose any money you put it into a traditional savings account because of the FDIC insurance.

Cryptocurrency bank savings accounts do not have FDIC insurance. If the cryptocurrency bank fails due to mismanagement or bad loans you could lose all your cryptocurrency. Plus cryptocurrency is volatile, so its value rises or falls. Your cryptocurrency could fall in value while you have it deposited in a cryptocurrency bank. So there is a chance that your investment will decrease in value and you will lose money. Because of this it may better to think of it as an investment, rather than a savings account.

Third, access to your money, It is all in the fine print.

In both a traditional savings account, and cryptocurrency account, you need to understand the terms of the agreement. In a simple bank savings you are usually free to withdrawal your money at any time, with no penalty, but the simple savings account pays very low interest of 0.1%. Traditional banks have other types of savings accounts called Certificates of Deposit, which paid 9-12 percent interest for short term lock up periods of 3 months, 6 months or one year. But these are practically non-existent now. Cryptocurrency savings accounts which pay significant interest from 1% to 8.6% percent have a similar lock-up period of 3 month, 6 months or 1 year. Because traditional bank certificate of deposit accounts are so rare, cryptocurrency accounts with lock-up periods are very popular with both traditional investors and cryptocurrency enthusiast with low tolerance for risk associated with other forms of decentralized finance. Remember that early withdrawals in cryptocurrency accounts, just like traditional bank certificates of deposits incur interest penalties which may greatly reduce your effective yield or profit.

Fourth, Yield or return on your investment

Unfortunately the average traditional savings account at the time of this reports writing, has an annual interest rate of 0.1% to 0.6% annual percentage yield (APY). Cryptocurrency savings accounts have much higher APYs. For example, BlockFi has accounts which pay as high as 8.6%.

Fifth, Cryptocurrency Savings Account Suggestions

Cryptocurrency accounts from established and presumed stable companies include:

#BlockFi is a popular cryptocurrency investment or savings account provider, paying up to 8.6%.

#Crypto.com a popular one pays interest on cryptocurrency like Ethereum, Bitcoin, and others arates upto 6.5% and upto 12% on Stablecoins with various lockup periods.

#Coinbase, paying upto 1.25% interest, but only on USD tokens you hold in your account wallet.

#Nexo is an unusual one, which pays daily interest payments, and has short lockup times, as shoprt as 24 hours, with rates as high as 12%. In addition, Nexo is unique in providing insurance for deposits, reportedly upto 100 million dollars, which is very reassuring.

Last words...

As you can see the APR or APY in savings accounts are around 4% to 8%. These yields are obviously lower then the fantastic yields of DeFi projects with 25% to 1000% yields.

But in general, they are typically safer, as these cryptocurrency institutions don’t fall prey typically to hacks or developer rug pull theft. But exchange hacks are not uncommon.

I am happy to see these developments, as they represent to me a maturing of the financial cryptocurrency market.

Plus...Investors come in all flavors, from those willing to take great risks for high returns, and those seeking more modest returns with much greater safety. These conservative investments, with modest, but good returns.

These institutions promise better safety and security of funds, which I think is a very important part of overall process of mass adoption of cryptocurrency.

@shortsegments

Additional reviews of Cryptocurrency Banks by readers of this post, I want to share:

First one

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Second one

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✍️ by @shortsegments

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