Investing in cryptocurrencies might be a huge risk due to the lack of regulation and regular price fluctuations. But what if you could earn interest on your crypto, and decide whether or not to expose yourself to volatile cryptos? Cryptocurrency lending platforms now make it possible for you to earn interest on big cryptos like Ethereum and Bitcoin, and also high yields on low-risk stablecoins.
With a crypto savings account, you can access the cryptocurrency market and earn interest as you do with a traditional bank savings account. If you have an interest in long-term crypto investing, you can consider a crypto savings account. It will help you earn interest and at the same time, keep your coins safe.
How Does a Crypto Savings Account Work?
The operations of a crypto savings account are similar to that of a traditional savings account. When you put your money into a traditional savings account, you're giving the bank permission to lend the money out to others. In exchange, you will receive a fixed percentage of interest each year from the bank.
When you open a crypto savings account, you put your funds into a digital currency like Ethereum or Bitcoin. Your cryptocurrency is then loaned out by the savings account provider to borrowers and a percentage of interest will be paid to you. To avoid being exposed to crypto price movements, you can decide to earn interest on stablecoins that are pegged to the US dollar.
Differences Between a Cryptocurrency Savings Account and a Traditional Savings Account
Traditional savings accounts and crypto savings accounts have a few significant differences. Some of these differences are discussed below.
The major banks have insurance from the FDIC (Federal Deposit Insurance Corporation). This insurance ensures that your funds are protected even if your bank lends out the money you deposit in your account. You won’t lose your money when you deposit it in a traditional savings account because the account is backed by the FDIC.
Crypto savings accounts don't have FDIC insurance. Due to the volatile nature of the cryptocurrency market, there is a potential that your investment could lose value, making you lose money. As a result, instead of thinking of crypto savings accounts as a substitute for traditional savings accounts, think of them as investment accounts.
The average yearly interest rate on a traditional savings account is 0.1 percent to 0.6 percent APY (annual percentage yield). The APYs on cryptocurrency savings accounts are substantially higher. For example, you may earn up to 8.6 percent APY on your initial investment when you open a crypto savings account with BlockFi.
You can withdraw your money from a traditional savings account at any time with no restrictions or fees. Crypto savings accounts may restrict your access to your coins for a certain period after you have deposited them into your account. You may also be charged a fee if you withdraw your funds before a specified date. But many platforms do not have a minimum lockup period and so, you can withdraw your funds anytime you want.
We hope you now understand what a crypto savings account is and how it differs from a traditional savings account. In our next blog post, we will explain to you how you can get started with a crypto savings account.
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