Everything you need to know about crypto savings accounts

Cryptocurrencies have proven themselves as a store of value and a hedge against inflation. Many coins have also seen phenomenal growth, making them booming investment opportunities. However, despite these attractive benefits, many people still choose to put their money in a savings account because of the risk-free interest they provide.

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.

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. Plus, just like a standard savings account, your crypto is liquid and (almost) never subject to a hold period.

How Do Crypto Savings Accounts Work?

Crypto savings accounts have different working models. Some accounts will use the stored funds to participate in staking, others will add the coins into 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 return percentage.

The holding 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 do not have a lock-in period. On the other hand, locked economies on Binance typically 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 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 play-to-earn crypto game) 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 increases to 25%. Likewise, returns will vary with other coins and platforms.

Benefits of Crypto Savings Account

1. Passive Income

All financial experts will tell you that passive income is a great path to creating and accumulating wealth. If you are optimistic about the future of cryptos, chances are you already hold a certain amount of tokens. With crypto savings accounts, you can earn passive income on your holdings and grow your stock without making further purchases. Some of these savings accounts also offer APY returns, allowing you to benefit from 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 maintain 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, such 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 present themselves as the best options. Even if your earnings are minimal, they still mean your portfolio will stay 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 through 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 operation is also familiar to your regular savings accounts. Therefore, even if you are a beginner, it will not take you long to get started.

Conclusion

Now that you know how crypto savings accounts work, you should take a minute to check out the different platforms offering such a service. What may vary are the interest rates they provide and if there are any hodling covenants. 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.