Cryptocurrencies are increasingly providing exciting investment opportunities. Investors are shrugging off the heightened volatility and uncertainty that this unique asset class has been known for to pursue the high returns that some of them promise.
Cryptocurrency savings accounts have cropped up, making it easy for people to build wealth and diversify their investment portfolios. The yield on offer in some of these accounts is sure to excite anyone looking to generate significant long-term passive income.
Such investment accounts allow people to deposit virtual currencies or any other digital asset and earn a standard rate of return over time. Such accounts earn money by simply pooling altcoins from investors and lending them to other investors. By generating interests in such assets, they can pay out part of the returns as interest.
BlockFi and Nexo are household names in the burgeoning cryptocurrency savings space, allowing people to accrue an annual percentage yield that is much higher than what is offered in traditional savings accounts.
BlockFi
Headquartered in New York, BlockFi is a crypto banking services company that offers interest yielding on digital currencies with no account minimums. It offers yields of as high as 7.5%. It also offers crypto-backed loans with rates starting at 4.5%, running to highs of 7.5%.
The interest in BlockFi savings accounts accrues daily and is paid out monthly. However, the rate of return varies depending on the virtual currency one invests in. The savings account offers the highest rates on stablecoins of as much as 7.5%.
BlockFi also offers crypto-backed loans, which allow people to avoid costly tax penalties. In this case, people can borrow against their coins instead of having to sell them when they need funds.
The loan services are available in 45 US states, where one can borrow as much as 50% of their altcoins collateral. Additionally, BlockFi does not charge any fees on deposits.
BlockFi is ideal for anyone interested in crypto lending.
Nexo
Headquartered in Zug, Switzerland, Nexo bills itself as a cryptocurrency lending institution. Founded in 2017, the company offers high-yield savings accounts that allow people to earn up to 12% interest on their virtual currencies holdings.
Unlike BlockFi, It is complicated to access the high 12% yield with Nexo. One of the requirements is that one must be a member of Nexo’s loyalty program. Additionally, rates range from 4% to 8% when dealing with normal cryptos such as Bitcoin, Ethereum, and Ripple. The high 10% to 12% yield is only available to stablecoins.
It also comes with cryptocurrency-backed loans with annual percentage rates of as low as 6.9%. In this case, one can borrow over 40 fiat currencies against 18 cryptocurrencies. Additionally, it offers an exchange that people use to trade over 100 virtual currencies and fiat pairs.
Nexo is ideal for anyone looking to earn the most interest on their holdings.
Crypto: safety vs. high savings rate
While selecting a cryptocurrency savings account in pursuit of interest payments, it is important to remember that this asset class can be extremely volatile. Given that the investment in such accounts is also made in cryptocurrency, there is always a high chance of such returns fluctuating significantly as prices swing.
While there is a high chance of generating significant returns, the prospect of losing a significant amount of money is also high, given the heightened volatility.
While investing in a traditional savings account, there is usually no restriction on the frequency of withdrawals. However, that is not the case with a cryptocurrency savings account. Such accounts come with rules and restrictions on how one can access their money or returns.
Additionally, it is important to check whether the account only pays simple interest, as is the case with most crypto savings accounts. Simple interest averts the possibility of benefiting from compounding known to generate much more returns. However, the high APY can still be worth it.
In addition, a good number of virtual currencies saving accounts require people to give up their private keys. This is because they need access to digital currencies to lend to investors whenever the need arises. Given that most investors are not usually comfortable with this, it can always prove to be a challenge. The fact that these accounts are also not FDIC insured could also present some risks on the part of the altcoin holder.
Crypto-based savings are not the safest when compared to other savings accounts. Given that one is required to hand over their private life increases the risk of losing everything.
However, the high interest rate on offer could be worth the risk if one finds the right provider to deal with. In very few places, one can earn a yield of 8% and above, making crypto savings account ideal for anyone looking for substantial passive income.
Bottom line
Cryptocurrency savings accounts such as Nexo and BlockFi are ideal for anyone looking to double their returns while holding virtual currencies. They stand out partly because of the high yields they offer, ranging between 4% and 12% depending on the altcoin one holds.
The yield on offer is much more than what is on offer in traditional savings accounts. However, the interest on offer with most of these accounts is not compound.
While investing in these accounts, it is important to remember they don’t come with any safety net as they are not insured, as is the case with regular savings accounts. While there are usually no restrictions on withdrawals with regular accounts, crypto savings accounts are a different ball game, given the restrictions designed to restrict the frequency of withdrawals.
