Traditional banks do not currently offer crypto savings account options on their service list. This unique feature is offered by cryptocurrency exchanges and other fintech players.
Crypto savings accounts, like traditional savings accounts, allow you to set aside a sum of digital coins and earn interest on it. The majority of offers are for predictable stablecoins, although most companies also accept more volatile assets like Bitcoin.
Unlike traditional savings accounts, crypto savings accounts are not FDIC insured. Also, in a traditional savings account, the money is yours. However, in crypto-based savings accounts, you are not in full control of your e-wallet; your cryptos are lent out to other people in exchange for interest.
Advantages of Crypto Savings Account
Below are some of the advantages of a crypto savings account
1. Crypto savings accounts are profitable: Crypto savings accounts are incredibly profitable. They come with more benefits than a traditional savings account. On average, you may expect to earn 4-8 percent interest on your deposit, although some companies go as high as 12 percent. In comparison, traditional bank high-yield savings accounts can bring you about 0.45 percent to 0.55 percent APR.
2. You can start earning interest from the first day you make a deposit: Many crypto savings accounts start paying interest the day you make your initial deposit - usually within minutes of the processed transaction.
3. You can earn without learning how to trade: Crypto savings allow you to earn with cryptos without having to understand trading. With these accounts, you don't need to master trading. You'll earn interest once you've made a deposit, eliminating the need for you to learn to trade.
Disadvantages of Crypto Savings Account
Some of the disadvantages of crypto savings accounts are given below.
1. No FDIC insurance: As already pointed out, crypto savings accounts aren’t FDIC insured. This means that you will not get your money back if the platform shuts down.
2. Withdrawal restrictions: Some crypto savings accounts have restrictions on the amount of crypto you can withdraw at a time. This means that you may not be able to access all of your funds when you want.
3. Crypto savings account may not compound interest: Another drawback of some cryptocurrency savings accounts is that interest may not compound. This means that your initial deposit will grow over time, but the interest earned on it does not compound. To realize the gains, you need to either trade or spend the interest.
4. Liquidity issues: Some cryptocurrency savings account providers demand that you lock in your account balance for a certain period. This implies that if the value of your crypto drops, you may be forced to keep it for longer than you desire.
5. Volatility issues: While most platforms offer a good interest rate, the prices of cryptocurrencies can be quite unpredictable. This can be a problem if your interest is paid in a cryptocurrency whose value is declining. Investing in stablecoins like USD Coin can help to offset some of this risk.
Now that you know that crypto savings accounts are not as safe as traditional savings accounts, it’s up to you to decide if the risk is worth the gain. If you're already a cryptocurrency investor, you're undoubtedly used to a certain level of risk and excitement.
On a personal level, I believe cryptocurrency savings accounts have value because, let's face it, there are not many places where you can earn an 8% return on your savings right now. A crypto savings account might provide that return, and the value of your assets could also rise in the interim if all goes well.
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