January18 , 2022

How to Compare Crypto Savings Accounts

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How to Compare Crypto Savings Accounts

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How to Compare Crypto Savings Accounts: There are increasing numbers of crypto savings accounts that advertise earning rates up to 14.5% APY or higher in the financial sector. Unlike traditional savings accounts, these interest accounts can hold your crypto investments. They don’t have the safety nets that you are used to. You’ll learn more about these accounts and be better equipped to determine if they are worth the risk.

How to compare crypto savings accounts

All crypto savings accounts may not be created equal. Some accounts offer greater APYs, while others provide more security. These elements often have more complex tiers and distinctions that you will need to know before signing up.

Types of accounts

The types of savings and interest accounts available to you will change as crypto develops. While some crypto savings accounts provide limited services, others offer all-in-one platform functionality that works with a cryptocurrency exchange.

There are three main ways you can start making interest in your crypto investments:

  • For those who are new to crypto, or do not have one yet, you might consider a crypto savings account such as Linus or Eco. This allows you to withdraw and deposit in USD while the background handles all your crypto transactions.
  • Consider a crypto savings account such as Hodlnaut if you already have crypto. This pays interest on the cryptocurrency that you deposit.
  • You can buy, sell, and earn interest all in one place. Compare crypto exchanges such as Nexo, Gemini or Crypto.com. This allows you to automatically earn interest on assets that you trade or buy.

Supported coins

Many platforms and providers offer savings accounts limited to popular cryptocurrencies such as Bitcoin and Ethereum.

You don’t have to deposit crypto to open an account. Linus, for example, allows you to deposit USD and then convert it into USDC. The bank then lends the money to borrowers who pay fixed rates and pass them on to you as an APY.

Earnings and interest

The account’s advertised APRY (or the return on your investment) is a crucial factor to consider. The APY is a percentage of your cryptocurrency account. This is different from traditional savings accounts. It can fluctuate according to supply and demand. You don’t always earn the same interest as with traditional savings accounts.

With crypto banking products, you typically earn interest in kind. This means that you are paid in the interest earned on the crypto. These accounts earn interest in style, so volatility is not a factor. For example, a 4% LTC account will give you 4% per year. However, if LTC prices drop by 50%, your cumulative USD total could be lower than your initial deposit.

Split APY is a feature that allows you to receive a portion of your returns in a native cryptocurrency token. Although a crypto savings account might advertise a 12% annual percentage, you will only be eligible for 2% in the native currency of the platform. You might also need to have a certain amount of the native currency to qualify for the highest possible APY.

The cryptocurrency savings account you use will determine the interest payments. Your interest could be paid in the same cryptocurrency you deposit or in a different or government-backed fiat currency like USD.

Accounts and platforms can have different compounding rates and payment frequencies. While most accounts compound every day, some accounts compound weekly or monthly — or, as Crypto Earn suggests, never at all.

Access to your investment

You may be required to lock your crypto for a specific time by some providers to earn the maximum annual percentage yield (part of the validation of your asset). After it has been validated, you must add it to the blockchain to earn rewards.

Crypto Earn’s account, for example, requires that you lock in $40,000 of the native Crypto.com Coin (CRO) for six months to earn its high 14% APR.

It would help to consider how easy it is to withdraw your earned and initial deposit. Nexo, for example, only allows you to withdraw up to five times per month, depending on how much native currency you have in your account.

Private key control

Not all crypto savings accounts offer the same control as traditional savings accounts. However, you can still control your keys to your crypto.

Coinbase, a noncustodial wallet, gives you complete control over your private keys. Your digital assets are yours alone, regardless of whether you make transactions on the platform.

Custodial accounts such as Nexo require that you hand over your private keys. The platform will act as your custodian and manage your crypto on your behalf.

There are also crypto savings accounts such as Linus that don’t allow you to see your private keys. Instead, you deposit US Dollars into the account. The platform uses a licensed money transmitter to manage any crypto transactions.

Security

Cryptocurrency, also known as decentralized finance or Defi, is a system component. It relies on the blockchain’s peer-to-peer system. It is a separate system from central finance, regulated by the FDIC/SEC. Consumer protections such as FDIC insurance won’t be applicable here.

Researching established cryptocurrency platforms focused on security can help you reduce risk. Cold storage, which stores your assets offline and in an area that is not easily hacked into, is better than two-factor authentication. Nexo, a platform that protects against employee-related theft and breaches, partners with third-party insurers to extend their coverage.

To filter out negative coverage about vulnerabilities, search Reddit and the headlines.

State availability

It is possible that you may not be eligible to sign up for specific brands or products, depending on where you live.

As authorities seek to strengthen their control over cryptocurrency exchanges and wallets, state and federal laws change. The SEC regards crypto as a security, despite confusion from the government about whether it is a currency or a commodity. There are strict rules regarding who can buy and how they can be sold.

States are also creating regulations. New York State has among the most stringent disclosure and consumer protection laws.

Are crypto savings accounts secure?

Because of the volatility of cryptocurrency markets, crypto savings account are not insured by government bodies like the Federal Deposit Insurance Corporation or Securities Investor Protection Corporation. Insurance is not available to cover funds lost or stolen from a platform that supports crypto savings accounts or wallets.

What can I do to protect my money?

Check to confirm if the platform has an insurance policy. Some crypto banks, such as Nexo, work with insurance companies to provide protection. Crypto.com, for example, relies on a native cryptocurrency token to store its value. This can be used to make up lost funds under certain circumstances.

If the platform does not offer internal protection, it might provide third-party insurance protecting digital assets in your crypto savings account.

  • BitGo. BitGo is now one of the most trusted digital asset insurers in institutions, securing digital assets up to $100 million.
  • Ledger. Ledger is well-known for its cold storage cryptocurrency wallets. Ledger now offers the enterprise-oriented Ledger Vault that comes with a tailored crime insurance program to protect assets up to $150,000,000.
  • Lloyd’s of London. The leading insurance market, Lloyd’s of London offers institutional and individual protection of crypto assets. This service is offered through a partnership between Lloyd’s of London and BitGo.

To understand what assets the insurance covers, it is essential to read all details carefully. It may only cover cryptocurrency, not fiat cash.

There are three benefits to crypto savings accounts

A crypto savings account is a great way to earn money and spend your crypto on everyday goods and services, whether you already own them or want to buy them.

  1. High potential returns. The rates advertised for crypto savings accounts are as high as 14.5% APR. This is far higher than the national average of 0.06% APR for traditional savings accounts.
  2. Get access to your crypto. You can link to a bank account or pay your utility bills using your account. This flexibility allows you to access your digital assets in a way that is more convenient than converting them into cash.
  3. Recurring customer benefits. The more services a platform or exchange offers, the better your benefits. Celsius and Nexo offer graduated loyalty tiers which allow you to earn bonus rewards, loan discount, and free withdrawals, as your token holdings increase.

There are three potential downsides to crypto savings accounts

It would help to weigh the pros and cons of crypto savings accounts compared to traditional ones before you sign up.

  1. There is no FDIC insurance. Savings accounts that are crypto-based are not eligible for FDIC coverage. These funds could be lost if a crypto bank goes under or hackers steal funds from it. Even with the use of internal measures, digital asset reserves are not as secure as cash reserves in traditional banks accounts.
  2. You may not have control over the private keys of cryptocurrency assets. Private keys determine whether cryptocurrency can be sold or transferred. You are putting funds in a third-party platform and allowing it to take care of your digital assets.
  3. Withdrawal restrictions. A traditional savings account allows you to make six monthly withdrawals. With Regulation D suspended, many banks have waived withdrawal fees for amounts greater than this amount. A crypto savings account has a stricter withdrawal policy. A platform can apply the policy they believe works best because there is no standard.

Traditional savings accounts vs. crypto savings accounts

The crypto savings account looks and act the same as traditional savings accounts at your bank. You can earn interest on your deposits by having your cryptocurrency stored and accepted by them.

You won’t find the same safety nets such as FDIC insurance or simplified tax reporting with these accounts. You can get attractive rates of up to 14.5% on your savings. However, the interest you earn is paid in cryptocurrency. This means that your earnings can vary depending upon the value of each coin or token.

To help you see the potential earning potential of crypto savings accounts, we compared them to other savings accounts.

How crypto is compared to traditional savings accounts

A crypto savings account will show you an APY based on how much interest you earn.

We compared three scenarios to illustrate the difference between traditional savings accounts and crypto-saving accounts.

  • You can deposit USD 2,500 in both a crypto- and traditional savings account
  • You can deposit USD 100,000 in both a crypto- and traditional savings account
  • Comparison of savings between three products

The APYs advertised for crypto savings accounts are as high as 14.5% or higher and more than 241 times greater than traditional savings accounts.

The type of cryptocurrency you deposit into crypto savings accounts will determine the APY. Depositing stablecoins, or cryptocurrencies like USDC, will often result in higher APYs than Bitcoin (BTC). If BTC keeps rising, future savings could be even more significant than if you earn in US dollars.

Deposit $2,500 in traditional savings accounts vs. crypto savings

FDIC says that a savings account at the central bank has an average annual APY of 0.06% as of November 2021, while high yield savings accounts boast APYs around 0.6%, which is ten times more than traditional savings accounts.

For $2,500 equivalent, we found that the average APY of crypto savings accounts was 8.44%. This is 140.6 times more savings than the FDIC national estimate.

The average APY for BTC is 4.50%, or 75x the savings when $2,500 is deposited. This is in contrast to the FDIC estimate of traditional savings accounts.

High savings for crypto over ten years

A $2,500 initial deposit into a traditional savings account could increase to $2,515 over ten years — an average of $15 in earned interest. High-yield savings accounts offer slightly higher accumulated savings. A $2,500 initial deposit at 0.6% APY can grow to $2654 over ten years — an overall $154 of earned interest.

This is compared to a crypto savings bank, where you could deposit $2,500 USDC at 8.44% interest, and your balance would grow to $5,621. After ten years, that’s a staggering $3,121 in interest. To save this amount at current rates, it would take 1,350 years!

A crypto savings account will earn you more BTC than you could with a traditional savings account. However, you won’t save as much by depositing USDC. If BTC is the same price as USDC, your initial equivalent deposit, $2,500, at 4.50% APY, will result in a balance of $3882 or $1,382 in interest.

Type of accountEnding balance after ten yearsEarn interestDifferent from traditional savingsAverage APY
Traditional savings account$2,515$150.1%
Savings account with high-yield$2,654$154$1390.6%
Crypto savings accounts — USDC equivalent deposit$5,621$3,121$3,1068.4%
Crypto savings accounts — BTC equivalent deposit$3,882$1,382$1,3674.5%

BTC price speculation, and your potential earnings

Fluctuations of the future price for Bitcoin can lead to higher gains and lower losses.

A USD 2,500 deposit converts to approximately 0.040 BTC by November 2021. At the current average interest rate for crypto accounts, this value could grow to 0.0606 BTC within ten years or $3,882 at the current BTC price.

Your potential gains maybe even more significant if the price of Bitcoin continues to rise.

  • Your initial deposit may be worth $3901 USD if BTC reaches $100,000 within 10 years. For a total of $6,058, the expected interest is 0.0216 BTC, which is worth $2,150.
  • Your initial deposit may be worth $19 505 in USD if BTC reaches $500,000 within 10 years. For a total of $30,000.290, the expected interest rate over ten years will be 0.0216 BTC, which is worth $10,784 USD.
  • Your initial deposit may be worth $39,000.11 USD if BTC reaches $1,000,000 in 10 years. For a total of $60,580, the expected interest is 0.0216 BTC. This is worth $21,569 USD.

Value and projected savings based on BTC price in 10 years

ScenariosBTC price prediction for the next ten yearsIn 10 years, the predicted value of 0.039 BTC to USDIn 10 years, the predicted value of 0.0606 BTC to USDDifferent
Low$100,000$3,901$6,058$2,157
Mid$500,000$19,505$30,290$10,784
High$1 Million$39,011$60,580$21,569

Crypto enthusiasts who are bullish on BTC’s future may find it attractive to deposit BTC into crypto savings accounts.

Putting $100,000 in traditional vs. cryptocurrency savings accounts

You will earn more interest if you deposit $100,000 in a crypto savings account than $2,500. This is because crypto savings accounts often have lower rates and higher balances.

The average APY to deposit $100,000 USDC into a crypto-savings account is 8.6%. This is slightly lower than the 8.44% for deposits of $2,500 USDC.

The average APY to deposit $100,000 BTC is 4.19%. This is slightly lower than the 4.50% APY to deposit $2,500 in BTC.

How to Compare Crypto Savings Accounts

Save more than ten years

A $100,000 initial deposit into a traditional savings account could earn 0.06% APY over ten years, or $602 in earned income. High-yield savings accounts offer slightly higher savings potential: A $100,000 initial deposit making 0.60% could increase to $106,165 after ten years or $6,165 in earned income.

You are comparing that to a crypto savings accounts, where you could deposit $100,000 USDC at 8.16% APY to grow your balance to $219148 in ten years, or $119148 as interest. You could earn $55,290 by depositing $100,000 in Bitcoin into crypto savings account with a 4.19% APY.

Type of accountEnding balance after ten yearsEarn interestDifferent from traditional savingsAverage APY
Traditional savings account$10,060$600.06%
Savings account with high-yield$10,616$616$5560.60%
Crypto savings accounts — USDC equivalent deposit$22,483$12,483$12,4228.44%
Crypto savings accounts — BTC equivalent deposit$15,529$5,529$5,4694.4%

How inflation affects your potential earnings

Prices rose 6.2% in the last 12 months, bringing inflation to a 31 year high. If inflation is more significant than your interest rates, your savings value will decline over time in current dollars.

Your savings could lose value if inflation is at 6.2%. This depends on how high your interest rate is.

  • Your balance will reach $100,602. If you have $100,000 invested in a traditional savings account earning 0.06% annually, it will take 10 years to accumulate that amount. This is equivalent to $54,797 in 2021 dollars based on an annual 6.2% inflation rate
  • Your balance in a high-yield savings account will reach $106,165 if you invest $100,000 with an annual APY of 0.066%. This is equivalent to $55,127 in 2021 dollars based on an annual 6.2% inflation.
  • Your balance will reach $219,148 if you invest $100,000 USDC in a crypto savings account at an APY 8.16% over 10 years. This is equivalent to $120,000.
  • Your balance will reach $155,290 if you invest $100,000 in Bitcoin in a crypto savings account that earns a 4.19% annual percentage for 10 years. This is equivalent to $85,094 in 2021 dollars based on an annual 6.2% inflation rate

If you save money in high-yield or traditional savings accounts, your savings will be less than what you deposit. In 10 years, inflation is taken into consideration. You will also have less money if you deposit your savings to a crypto interest account that uses bitcoin. The potential price appreciation of Bitcoin could offset or increase the loss in value. You can save more money by depositing in a crypto interest account with USDC than you did when you first opened it in 2021 dollars.

Three products offer potential savings

We chose three products to highlight the savings potential for each type of savings account. We calculated the savings over ten years using current rates based on a $2,500 initial deposit and a $500 monthly pledge.

  • Bank of America Advantage Savings — 0.01% compounded every day
  • Ally High Yield Savings account — 0.50% compounded each month
  • Nexo Earn — Monthly compounded 10.0%

We also chose one product to suit each type of savings account: traditional high-yield savings, high-yield crypto savings, and high-yield savings.

Our findings

We compared three savings accounts, and the interest earned ranged from $32 to $44,713.

  • Bank of America Advantage Savings reached a balance of $62,532, with $32 earned interest.
  • Ally High Yield Savings Account reached a balance of $64,162, which is $1,662 earned interest.
  • Nexo Earn reached an ending balance $107,213 and earned $44,713 of interest.

Over ten years, Ally earned $1630 more interest than Bank of America Advantage Savings – 50.5x more than Bank of America.

Nexo Earn earns $44,681 higher interest than Bank of America Advantage Savings over ten years – 1,385 more than Bank of America.

How can I open a Crypto Savings account?

Different platforms or exchanges require additional steps for signing up. Linus doesn’t need crypto; Crypto.com does.

You can start by looking for the Register or Signup buttons on your platform’s website. Follow the instructions.

Platforms must comply with Anti-Money Laundering Regulations and “Know Your Customer” policies. These policies require government-issued ID (including photos) and proof that the address is correct. Your Social Security number is needed for platforms like Crypto.com and Coinbase.

Bottom line

The new crypto savings account offers cryptocurrency investors the opportunity to turn their idle cryptocurrency assets into a profit. The interest rates offered by cryptocurrency asset accounts are many times higher than those provided by traditional banks.

Although interest rates can be high, crypto savings account are not as well managed as traditional savings accounts. There is no FDIC protection because of the higher counterparty risk. Many versions also have restrictions on withdrawals and overall custody of digital assets.

Suppose you have substantial cryptocurrency holdings and are willing to overlook volatility in the short term. In that case, it is possible to boost passive returns by depositing a certain percentage into a crypto savings bank.

For more information about crypto banking, visit our homepage.

RELATED ARTICLE

Crypto savings accounts guide

A crypto savings account is a good way to keep your cryptocurrency in a safe place while earning interest. However, it is important to note that a crypto savings account is not the same as a crypto wallet, which means you’ll need to dig deeper to find a lender willing to accept your cryptocurrency. It can be difficult to find one that accepts Dogecoin, for example. You’ll likely have to do more research than a simple google search.

Traditional bank savings accounts have no guarantees of security, so investors can lose all of their funds. While there are no guarantees, they are protected by the FDIC, which means that your money is safe with them. While you can find a crypto savings account that allows withdrawals anytime, you should know that some accounts have a lock-up period or additional fees if you withdraw your money too often. While these limitations can increase costs, they can make crypto savings account more flexible.

Before opening an account with a crypto savings account, make sure that the company offers security measures. Many of these companies offer cold storage to help protect your coins from hackers. It is essential to check the security features of the provider before signing up. In addition to cold storage, make sure that they support the coins you plan to keep. You should also check the availability of multiple currencies. This is because some exchanges only support a limited set of cryptos.

The risks associated with crypto-based savings accounts are significantly higher than with traditional savings accounts. A good provider will offer a secure cold storage facility and a high-interest rate. There are also some crypto savings accounts that offer insurance against losses from hacks or theft. It’s important to understand how the interest rate works for the provider you choose. This is particularly important if you’re looking to earn interest in your cryptocurrencies. The risk of losing your money is higher, but you may be able to get away with it with a stable coin.

When opening a crypto savings account, make sure the service is secure and offers the best security measures. You should also consider the time it takes to open an account. As with any type of account, it’s important to carefully plan your withdrawals. It’s possible that the system could become unreliable, resulting in a loss of your assets. Despite this, many crypto savings accounts are secure and will not incur any losses.

While it’s important to choose a reliable provider with a good reputation, some crypto savings accounts have low-interest rates. These are typically low and require an investment of a certain amount. For example, Linus doesn’t require any prior knowledge of cryptocurrency and pays interest on US dollars only. Its popularity isn’t surprising, since many people have flooded into the cryptocurrency market to try it. There are a few things to consider before making a decision.

First, it’s important to understand how crypto savings accounts differ from traditional savings accounts. While a traditional savings account has no owner, a crypto savings account does. It can also be useful for those who already have a cryptocurrency but are unsure about how to use it. For instance, if you’re a beginner to crypto trading, it’s important to learn more about how they operate. This way, you’ll have more confidence in your investment and can maximize the potential of your account.

Secondly, you’ll need to understand how your account earns interest. Unlike a traditional bank, a crypto savings account earns interest on the amount of money you deposit into the account. While the rewards are based on how much you deposit, there are some drawbacks, but these are minor. Most of the time, you’ll be fine with a crypto savings account. It’s worth it to save your cryptocurrency in the long run.

A crypto savings account has some advantages, but there are some drawbacks. You can’t withdraw your funds as you wish, but you can transfer them to another account. It’s important to note that a cryptocurrency savings account does not have FDIC insurance. A typical bank savings account can be accessed six times a month, but a crypto savings account has many more restrictions. If you need to withdraw funds, you’ll need to contact the bank immediately. Article you might Also like

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