Are you planning on boosting your returns on investment while testing the waters of cryptocurrency? Then you may need to get a cryptocurrency savings account. However, this type of account does not guarantee the same security that your bank offers. So, before you start investing, you need to understand how the platform works.
Crypto Savings Account – What It Is
This platform works just as it sounds. It provides a means for you to deposit cryptocurrency or other assets and earn interest over time. For instance, with a Blockfi crypto account, you can earn interest to the tune of an 8.6 percent annual percentage yield (APY). This implies that you will have an increment of 8.6 percent every year.
Furthermore, your interest rate may vary based on the type of asset you have. This could be Ethereum, Litecoin, Bitcoin, and so on. Also, the platform may allow you to select the cryptocurrency in which your interest will be paid.
How Does It Work?
The account works like that of the traditional bank. The money you deposit into your savings account serves as permission for the bank to loan it out to third parties. The bank will then pay a certain interest percentage to you each month.
With cryptocurrency savings, your digital currency such as Ethereum or Bitcoin is your deposit. The platform operators will loan out the cryptocurrency and give you an interest percentage in exchange.
Traditional Savings vs Crypto Savings
There are some differences between both types of accounts. They are:
1. FDIC Insurance
The Federal Deposit Insurance Corporation insures most banks. This is a guarantee that your deposited funds are safe even when the bank loans them out to borrowers. As a result, you will not lose your money in a traditional bank because it is backed by the FDIC.
On the other hand, crypto savings does not have any insurance. As a matter of fact, the crypto market is volatile and the value of your investment can decrease at any time, causing you to lose money. Therefore, you should regard it as an investment platform, not another kind of bank savings.
2. Access to Fund
The traditional bank allows you to withdraw funds at will; there are no restrictions or fees. But cryptocurrency accounts limit your access to funds for a certain period after depositing them. Also, you may pay a withdrawal fee for collecting your coins before the due date.
Traditional banks offer interest rates between 0.1 – 0.6 percent APY. But cryptocurrency accounts have higher annual percentage yields.
You may also want to read this article on cryptocurrency wallets.
Things to Consider Before Opening Cryptocurrency Savings Accounts
Before you open the account, you have to compare different service providers. Below are some things to consider before selecting a service provider:
Since you do not want to lose your coins, it is important to research the service provider to be sure that your investment is safe. We have already mentioned that crypto accounts do not have the backing of FDIC. Hence, you need to consider the provider’s financial stability as well as their cold storage solution for safe investment.
2. Supported Coins
Crypto savings accounts allow you to deposit different types of coins. But service providers place restrictions such that you can’t earn on all coins in the market. So, ensure that you select a service provider that will accept the type of coins you have.
3. Purchase Availability
You may want to select a service provider that provides market access alongside a savings option. This will allow you to buy coins using different purchase methods.
Is It Worth Having a Cryptocurrency Savings Account?
We already know the differences between traditional banks and cryptocurrency accounts. So, it is left for you to choose if the risks are worth the rewards. If you are already investing, you are probably comfortable with the experience.
Currently, traditional banks do not offer up to an 8 percent annual percentage yield. But with cryptocurrency accounts, you can save and earn interest up to that amount.
You may also want to check out https://www.investopedia.com/articles/investing/082914/basics-buying-and-investing-bitcoin.asp to know how to buy bitcoin.
In this article, we discussed the basic things you need to know about cryptocurrency savings accounts. There are different service providers, so before you invest, research the one that suits your needs.
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