March 12, 2021 | AtoZ Markets – Thanks to Warren Buffett who has criticized Bitcoins and other cryptocurrencies as worthless and called them a gambling device, many people still view digital currencies as a huge risk. Cryptocurrencies, especially Bitcoins, are famous for their volatility, and with good reason. Bitcoin’s prices have fluctuated by, at least, 20%, about 47 times since 2010.
Also, in 2010, one bitcoin was worth USD$0.03. Today, it’s worth more than USD$44,000—an increase of more than 146,000,000%. Bitcoin is, indeed, volatile, but for every price drop, it comes roaring back, stronger than ever. Whatever risks cryptocurrency may have, it’s an idea which time has come.
Cryptocurrency may very well be the future of finance. So, if you want to invest in cryptocurrencies to increase your holdings and to diversify your investments, opening a crypto savings account isn’t the worst idea. But, first, what is a crypto savings account?
Crypto Savings Account
A crypto savings account is similar to a regular savings account. Over time, the asset you deposited can earn a standard rate of return, just like in your regular savings account. Some cryptocurrency savings accounts, however, offer a higher rate. You can check and compare for yourself the best crypto savings accounts. The interest can accumulate daily, and you can get paid monthly.
The rate of return on your savings account will, however, vary; it would depend on which cryptocurrency you have. Also, opening an account is as easy as pie. Just go to any “crypto banks” as shown in the link above and set up an account.
Now that you have an idea about the crypto savings account, below are some important things to know about this type of account.
1. Interests Are Higher
Just like in a conventional savings account, you implicitly permit banks to loan out your money to third parties. In return for letting them loan out your funds, your asset earns a standard interest rate. Storing your funds with cryptocurrency companies can earn you about 3-6% for Bitcoins. Interest in US traditional banks for a traditional savings account could only give an interest of 0.60% annually, at most.
With other cryptos, like stablecoins (basically, the US dollar), a savings account can give you an APY (annual percentage yield) of more than 8%. These rates are considerably higher than what conventional banks are offering today.
2. You Don’t Need Cryptocurrencies To Open An Account
If you don’t own any cryptocurrency, you can still open a cryptocurrency account. You can deposit in your account digital money or US dollars. However, you can only deposit US dollars using a wire transfer. If you’ve opened an account with Blockfi, note that the dollar you can deposit is the stablecoin called Gemini (GUSD).
Another crypto savings account provider allows you to deposit and earn interest in US dollars, but that account provider only lends money to investors who exclusively buy Ethereum. Your future returns would depend on the performance of this one cryptocurrency.
3. You Can Pick Which Currency To Hold
You can trade the stablecoin or cryptos in your account into other currencies if you want. You can choose cryptocurrencies or if you want something more stable, you can select other stablecoins—they can offer the highest interest rates.
4. Crypto Savings Account Is Different From Crypto Wallet
The main difference is that the crypto savings account earns interest, while the crypto wallet doesn’t. On the other hand, the ones in your wallet are more secure. You have full control of them, and you can withdraw and sell them anytime.
With a crypto savings account, there’s a limit to the amount you can withdraw or the frequency of your withdrawal. Because this type of accounts is new, there are still no standardized withdrawal limits. Limits and restrictions vary from provider to provider.
5. Crypto Savings Accounts Are Not Insured
Unfortunately, these accounts have no protection from insurance corporations like FDIC in the US or CDIC in Canada. But, some providers offer insurance for up to USD$100 million.
A crypto savings account is great for investment diversification, but not a place for your emergency fund. Interests are higher compared with a traditional savings account, but the opportunity to earn an 8% interest carries with it some risks. At the end of the day, you have to decide whether it’s well worth the risk.