Cryptocurrencies have proved their worth as a store of value and hedge against inflation. Many coins have also shown tremendous growth, making them burgeoning investment opportunities. However, despite these attractive benefits, several individuals still opt to place their monies in a savings account, owing to the risk-free interest they provide.
However, most people don't know that cryptos have a savings account equivalent too, and we will learn 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. All the crypto you store in such an account earns you interest. Also, just like a standard savings account, your crypto is liquid and (almost) never subjected to any holding period.
How do crypto savings accounts work?
Crypto savings accounts have varying working models. Some accounts will use the stored funds to participate in staking, others will add 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 assured a minimal fixed return percentage.
The period of holding can also vary. For instance, 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 ranging 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 numerous factors, such as the platform you choose, the coin you deposit, and the kind of account (fixed, flexible, etc.). For instance, users can store their AXS (the native currency of Axie Infinity, a play-to-earn crypto game) on Binance and earn an estimated APR of up to 20 percent with a flexible account. However, if the user opts for a fixed account, the interest jumps to 25 percent. Similarly, the returns 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're optimistic about the future of cryptos, chances are you already hold a certain amount of a token(s). With crypto savings accounts, you can earn a passive income on your holdings and build on your stockpile without making any further buys. Some of these savings accounts also offer APY returns, allowing you to benefit from the power of compounding.
2. Little to no risk
As is the case 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 do not have to worry about losing your holdings. Some would argue that these platforms are safer than bank accounts too. They are usually legally bound or insured to make sure that depositors' funds are returned in case of insolvency, as with BlockFi and Nexo.
3. A good option during crypto winters
When the markets are volatile, and not necessarily in your favour, these savings accounts come in as the best options. Even if your earnings are tiny, they still mean that your portfolio will remain in the green until the market conditions are favourable again.
4. The Learning Curve
Earning an income by directly investing 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 an easy-to-use interface and step-by-step guidance. The working is also familiar to your regular savings accounts. Therefore, even if you're a beginner, it wouldn't take long for you to get started.
Conclusion
Now that you know how crypto savings accounts work, you should take a minute to discover the various platforms offering such a service. What may vary are the interest rates that they provide and if there are any hodling commitments. Always choose a platform you're comfortable using, preferably one that's been in the market for a while and has a solid reputation. You should also go through their terms and conditions and seek out platforms that insurer depositor funds.
Also Read: How can cryptocurrency help the unbanked?
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