If you’ve succumbed to the crypto craze and own some cryptocurrency yourself, then you may be interested in a crypto savings account to give these holdings an added boost.
These types of ‘savings accounts’ are relatively new, as with crypto itself, but the rate of return is eye-catching and certainly puts the best yields offered by FDIC-insured banks to shame.
That said, while these products can be exciting, they do come with underlying risks that typical savings accounts offered by banks or credit unions do not. So, if you’re considering investing in cryptocurrency just for the high yield savings products, you may want to conduct further research to see if these digital currencies are right for you.
However, if you already own cryptocurrency and want to couple this with fantastic yields, then continue reading our comprehensive guide of the top crypto-based savings accounts on the market in 2021.
What are Crypto-Based Savings Accounts
Before you open a crypto-based savings account it is probably a good idea to fully understand what these products are and how they differ from traditional savings accounts.
First, these accounts provide a yield on your crypto holdings, not U.S. dollars. There are several crypto banks offering fantastic APYs (annual percentage yields) on the USDC coin which is pinned to the U.S. dollar and generally trades in parallel, but it is not the actual USD.
In fact, these accounts should be viewed as investments rather than savings accounts, because that is really what they are at their core.
You invest in crypto currency and then lend out your keys to a third party in exchange for interest.
The precise activities going on under the hood with your crypto keys vary depending on which platform and account you choose.
We’ll touch on the mechanics and risks to these investments further on, but first, aside from the high interest rate, let’s look at some of the positive impacts crypto savings accounts are having to the overall cryptocurrency economy.
For starters, it’s an automated way to grow crypto portfolios over time. For example, if you are already fully invested in bitcoin, you can deposit that bitcoin into a crypto savings account and earn additional interest paid in bitcoin.
Also, crypto savings accounts continue to be an on-ramp for getting people to deposit their USD, CAD, AUD, and GBPs and convert them into a crypto savings account. By drawing in more participants to the crypto economy, greater liquidity can be attained leading to eventual price stability for the new asset.
Also, long time holders of crypto are incentivized to move their crypto out of storage and into the markets facilitating adoption and helping innovate new use cases for crypto.
In the end, interest rates are important in financial markets because they fill the gap between people with surplus assets they can’t use and the people who need the assets because they have a productive use. High interest rates being offered can be seen as demand for the underlying crypto assets.
How Much Can You Earn with Crypto-Based Savings Accounts
There are two main factors that are going to affect your overall earnings (or losses) from a crypto-based savings account:
- The cryptocurrency’s price in U.S. dollars.
- Interest rate paid on your crypto savings account(s).
The first main factor is likely going to be the biggest variable in determining your overall gains or losses. This becomes a bigger risk if you hold your savings account for a long period of time.
Cryptocurrencies are highly volatile, un-regulated, risky investments that are not backed by the government like standard currencies are. Therefore, if the cryptocurrency you are holding in your savings account goes down in value while your crypto savings account is active, it is quite possible to lose a portion of your principal.
This is a similar concept we discussed with the inherent risks of foreign currency CDs, where a great interest rate can be negated entirely if the currency you are holding goes down in value against the U.S. dollar.
The second variable is APY paid on your crypto savings. This varies widely on a number of factors.
Currently some of the top crypto banks outlined in this article are paying between 3.2% and 12.0% APY. To put this in perspective, the average savings account yield sits at just 0.05% APY according to recent FDIC data.
So, without further ado, here are our top 11 crypto-based savings accounts for February 2021. These are not necessarily ranked in descending order from best to worst.
Celsius Network – Best for High Yield + Sign Up Bonuses
The Celsius Network offers noteworthy yields and even sign up bonuses, however, the very best rates can not be attained by U.S. residents.
Celsius has a loyalty rewards program that pays rewards in tiers with its own native currency (the CEL token). Those in the rewards program have access to Celsius’s highest rate of 18.55% however, the rewards program is not currently offered to U.S. residents. We will update this post when/if that changes.
APYs for U.S. residents range from 2.50% to 13.99% APY.
There are no minimum deposit requirements and interest payments are made weekly.
There’s currently a $40 bitcoin sign up bonus for new customers too! Download the app here for the bonus.
Here’s what to do once you download the app: Use the promo code WEB40 to get $40 in Bitcoin after transferring $200 or more in crypto to your Celsius wallet and holding it there for at least 30 days. Minimum of $200 must be transferred in 1 transaction.
Coinbase – Best for Newbies Holding USD Coins
Earn up to 1.25% on USD coins.
Coinbase is one of the most well recognized brand names for holding and trading cryptocurrency.
The coinbase digital wallet lets users earn up to 1.25% on their idle USD coins while you wait to make new trades. You also have less restrictions when it comes to withdrawing funds in your Coinbase digital wallet as Coinbase doesn’t loan your USD coins out to borrowers.
BlockFi – Runner-Up for High Yield
Earn up to 8.60% APY with BlockFi.
BlockFi is a crypto custodian that was founded in 2017. This platform allows people to earn a high interest rate on their cryptocurrency, take out USD loans against their cryptocurrency holdings and trade the following cryptocurrencies:
- BTC,
- ETH,
- LTC,
- PAXG
You can also trade the following USD-based stable coins on BlockFi:
- USDC,
- USDT,
- GUSD,
- PAX
The BlockFi interest account features rates up to 8.6% APY currently. The lowest APY this account offers is just 3.0% and is for deposits of 2.5 BTC or more. The more Bitcoin you deposit, the less interest you earn with BlockFi. Other cryptocurrencies feature flat rates from 5.0% to 8.60% APY.
You can learn more about how BlockFi’s interest works here, but in a nutshell they generate interest by lending your assets to “trusted institutional and corporate borrowers.” They also claim to lend crypto on overcollateralized terms with an automated risk management system that monitors positions 24/7.
Linus – Best for Liquidity
Earn up to 4.50% APY + withdraw funds at any time with Linus.
If you’re looking for a solid rate plus easy access to your funds and limited withdrawal restrictions then Linus might be your best bet.
Many crypto savings accounts come with fees or restrictions when you attempt to withdraw funds prior to a specific date. This is not the case with Linus. Linus differentiates itself by allowing their customers to withdraw funds at any time, penalty free. If you need help, humans are available via online chat.
Linus provides an interest rate of 4.50% APY on your crypto stash. Linus generates interest by lending your assets to borrowers via smart contracts.
Crypto.com – Best for Cryptocurrency Diversity
Earn between 3.0% and 12% APY with Crypto.com.
If you hold some cryptocurrencies that aren’t the major household names and would like to earn interest on your holdings, then Crypto.com might be a good place to look. They currently offer great interest rates on the widest range of cryptocurrencies which currently feature 26 cryptocurrencies and 8 stablecoins.
You can earn a phenomenal APY of up to 12% on stablecoins and 6.5% APY on cornerstone cryptocurrencies like bitcoin. Simple daily interest is applied and deposited into your account weekly. Rates depend on the term of your deposit which can be flexible (you can withdraw anytime) up to 3 months long.
Nexo – Best for Rapid Payments
Earn up to 12% APY (paid daily) with Nexo.
Nexo’s claim to fame is limited lock-up times of just 24 hours or less. That means your interest payments are paid out daily.
Nexo has already racked up over 1 million users since its inception in 2017.
Nexo also has $100 million in insurance on all custodial assets.
There are no monthly fees or minimum deposit requirements to open an account.
Outlet Finance – Best for Dealing in US Dollars
If you do not study cryptocurrency trends but still want to dabble in the space and earn a handsome return while you do it, then Outlet Finance may be your best option.
You don’t need to know much about Crypto with this platform as they deal with U.S. dollars. Users deposit funds in USD and users earn interest in USD.
How it works: Outlet Finance converts your investment to stablecoin and then connects it with their overcollateralized lending partners, matching it with the highest yield.
Overcollateralized means their partners must put up 120% of their loan request. In the event that they default, this gets liquidated to pay the investor (you) which helps mitigate your risk.
The company advertises APYs up to 6%.
YouHodler – Jack of All Trades
YouHodler is a Swiss company that gets its name from the playful misspelling of the word “HOLD” which later utilized the acronym “Hold On for Dear Life” and was adopted by the investment community as a term to ‘hold’ or not sell your investment.
It makes sense then that YouHodler is designed to help long term crypto holders get additional earnings from their holdings.
YouHodler boasts yields between 3% and 12% depending on currency and investors can get started with as little as $100.
We awarded this platform with the Jack of All Trades title because it excels in most categories consumers care about: 1. Access to funds / liquidity. 2. High paying yields. 3. Diversity of coins accepted. Savings accounts and exceptional APYs are offered on 22 cryptocurrencies currently with YouHodler.
Interest payments are paid every week.
Gemini – Best for Security
Gemini claims to be operating with a security-first mentality since day 1.
Once you deposit your crypto with Gemini the majority of it is held in their “offline, air-gapped cold storage system” which helps prevent theft by hackers and/or malware. Only a small portion of your deposited crypto will be held in their online “hot wallet” and it is insured. You can get a full rundown of their security measures here.
APYs range from 1.54% to 7.40% depending on currency.
Interest is paid daily.
CoinLoan – Security and Safety Runner-Up
CoinLoan is an Estonian firm that specializes in security and safety like Gemini.
They also do a great job in supporting a wide range of cryptocurrencies, which currently sits at 17.
Their APYs range from 5% to 12.5% depending on cryptocurrency.
There are no minimum deposit requirements and interest is paid monthly.
Hodlnaut – Runner-up for Liquidity
Hodlnaut is another play on words with the term HODL, which is a common misspelling for HOLD plus the word Astronaut, to get Hodlnaut.
They are based out of Singapore and only accept deposits in 5 cryptocurrencies currently. These are BTC, DAI, ETH, USDC and USDT.
Hodlnaut does not currently hold any regulatory licenses in Singapore but is applying for them under the new regime. Visit their FAQ section to read more.
Interest is paid out weekly, every Monday.
APYs range from 6.2% to 8.3% depending on cryptocurrency.
Who are these providers I’m lending my keys out to?
Exchanges and lenders are the businesses who take your keys and lend your crypto assets to others. These institutions will loan out the crypto assets to other borrowers who may be individuals or institutions who need liquidity and don’t want to sell their cryptocurrency. Most traditional banks are unwilling to take crypto assets as collateral for a loan which has opened the door for these exchanges and crypto lenders.
Currently, interest rates are relatively high as users can earn up to 12% in some cases. Additionally, by offering the high yield it helps attract and on-board more people into the crypto economy. This is because in order to earn the high rate of interest, you need to convert your fiat currency over into bitcoin or another cryptocurrency to get started.
That high rate of return has likely succeeded in attracting more people into the crypto economy. According to Statistia, 20 million bitcoin wallets were created from February 2020 to January 2021. This represents a 43% increase from the number of wallets a year ago.
Why would a business want to borrow at 8-12% annual interest?
It is great that savers like us get to benefit from earning a high interest rate. Who would be willing to pay 8-12% annual to borrow the cryptocurrencies?
Institutions are a large driver of crypto borrowing. If they have a mismatch on the timing of their debits and credits, they can park collateral with the lender, then pull out a short-term crypto loan to fund the mismatch.
Market makers and crypto dealers are a great example of this. If you make a large buy order of bitcoin, the market maker or dealer probably does not have bitcoin as it is highly unlikely somebody else is selling to them that exact amount at that same time. These market makers want to be neutral and not be exposed to a directional risk in bitcoin.
Therefore, they will take on a short-term loan of bitcoin until sell orders come in. At that point, they will repay the loan back with their new sell orders from their clients.
As another example, one of the benefits of cryptocurrency investment is the decentralized marketplace. There are many different places you can go to buy, sell, and exchange your crypto.
As a result, the pricing of bitcoin (and other cryptocurrencies) may not be EXACTLY the same and might vary by 1% or so at each of these venues. Arbitrage traders will look to profit from the difference in pricing from the various locations.
However, those arbitrage traders might not have the right cryptocurrency located at the venue where the mismatch occurs. Therefore, these traders would take on a short-term loan in their needed cryptocurrency to take advantage of those pricing dislocations.
The amount of interest the arbitrage traders pay in a year might be earned through their business in a few short weeks. Even though 8-12% of interest payable per year sounds like a lot, some business models are happy to pay for it which is to the saver’s benefit!
Lastly, some investors who feel the price appreciation of bitcoin or ethereum will be multiples greater than the 8-10% of interest they pay. As a result, they will consider depositing their crypto as collateral, then taking a US dollar loan out. They will then turn around and buy more crypto with the US dollars lent to them. As you can imagine, that is a risky move as you would be betting on the crypto you are purchasing will be more valuable later when you repay the loan. That is not always going to be the case.
Risks Associated with Crypto Savings Accounts
Though a crypto-based savings account has its benefits, there are risks of loss to investing in it. Let’s explore seven risks associated with these investments.
Exchange Rate Risk
Risk that the value of the underlying crypto goes down relative to your base currency (USD, GBP, etc). The value of a cryptocurrency is not backed by the government and is not legal tender. Additionally, the accounts to where the crypto is placed to earn interest are not subject to FDIC, SIPC, or other guarantees. If something happens to that cryptocurrency that would cause it to lose its underlying value, then you would lose your principal invested amount.
There are several different types of cryptocurrencies to earn interest on. The value of cryptocurrencies like bitcoin and ethereum are volatile and can easily lose their value quickly. Many crypto savings accounts pay their interest in crypto so not only is your underlying principal losing value, but the interest you are earning has less real value too. Of course, the opposite of that is true when you have an appreciating underlying asset.
As a result of volatile valuations, savors like to use stablecoins in their crypto savings accounts.
Risk of the Stablecoin Peg Breaking
Stablecoins are designed to hold a stable relative value to another asset, like the US dollar. If the stablecoin cannot hold its value relative to the assigned asset, then investors would lose trust in the stablecoin causing its value to potentially collapse.
It is important to note that not all stablecoins were created equal. Some stablecoins are centrally managed and promise to have US dollars locked away, in a vault with regular audits completed.
Other stablecoins are decentralized and are managed by computers and computer code rather than humans. It could be argued that each of these types of stablecoins bears their own unique risks.
In the former, the central institution could break their promise and mismanage the business causing the peg to the US dollar to break. In the case of the latter, an error in the coding could be discovered in the future that causes a break of the peg against the US dollar.
In case there is a break in the peg, investment may flee that stablecoin potentially causing loss of principal.
Lock Up Risk
Some crypto savings accounts are very flexible where you can withdraw at any time. Other crypto interest accounts may have lock up periods or additional fees for excessive withdrawal activity. Generally speaking, the more restrictive accounts will offer the higher interest rate while the more flexible accounts tend to offer the lower interest rates. Make sure to ask questions about a lock up period, withdrawal restrictions, and any additional fees before committing.
Pledge Risk
You no longer control the crypto and are pledging it as collateral. For example, when you deposit at a bank you are staking a claim to a bank’s liability. It is a similar situation with the crypto savings account (minus the government protections). If the crypto provider goes under due to a mismanagement of their business or an adverse market event, you will not be able to get your bitcoin or cryptocurrency back. This is because when you deposit the crypto into the savings account, you no longer own the crypto.
Loan Default Risk
If the value of the collateral backing the loan falls and is insufficient to pay back the lender, the load could be defaulted upon. Though this is a real risk, most crypto loans tend to be overcollateralized which greatly reduces the risk.
In other words, it is common for borrowers to maintain collateral equal to 150% of the loan amount. Therefore, if the value of the collateral decreases due to adverse market conditions, there is typically enough cushion to support the loan. It gives the borrower time to repay the loan or for the loaner to liquidate the position on the open market. The loan default risk could come into play if a rally harsh market correction drove the value of cryptocurrencies very low very fast. In essence, markets would have to crash 50% in a matter of minutes what hasn’t happened…yet.
Risk of Custodian Hack
A large risk factor is if the lending company’s custody provider (where the assets are stored) gets hacked. If you are utilizing an exchange’s crypto savings account, it is possible that a theft could occur due to a hack at their custodian.
Many people who are new to cryptocurrency are afraid of the blockchain getting hacked. However, the risk of a hack is not actually to the blockchain, but rather the institution’s security (or smart contract, see below) which is different from the blockchain.
It is important to understand that the ‘hack’ risk is increased when you are dealing with a newer institution or an institution whose investment in security is not as strong as others.
Typically, institutions that have been around longer tend to be stronger as they have stood the test of time.
Smart Contract Risk
Decentralized finance (Defi) lenders use automated coding called smart contracts to loan and allocate capital. This coding is viewable by everyone so it is quite transparent. Everyone is incentivized to make sure the coding is solid.
However, a previously undiscovered error in a smart contract may open the door for a hacker to find their way in. For example, a loophole in the code may cause the lender to lose the funds.
This has some similarities to the custodian hack risk as newer untested lenders may not have had their smart contracts battle tested. Though not exempt from the risk, lenders who have been around longer and whose products have stood the test of time are generally less likely to be exposed.
Crypto Savings VS Traditional Savings
Despite having the name ‘savings account’ in their title, crypto-based savings accounts have some very distinct differences from traditional savings accounts.
Above, we have touched on some unique qualities and risks to crypto-based savings. Below, we’ve outlined a side-by-side comparison.
|
| Traditional Savings | Crypto Savings |
| FDIC Insurance | Yes | No |
| Withdrawal Allowance | Generally unlimited | Can be Limited |
| Interest Calculation | Usually Compound | Usually Simple |
| Interest Deposited Best APY | Monthly ~0.3% | Daily or Weekly ~12.0% |
FDIC Insurance
Variable rate deposit accounts including savings accounts, checking accounts and money market accounts opened with traditional banks or credit unions come with FDIC insurance (or NCUA insurance for credit unions) that protect your funds in the case of institutional insolvency while your money is held there.
FDIC and NCUA insurance cover deposits up to $250,000 per individual or $500,000 on joint accounts.
This is not the case with crypto-based savings accounts where it is possible to lose money – both interest and principal. Crypto investments are not covered by government insurance and are not considered legal tender.
However, many crypto institutions will provide insurance for certain risks of loss. Unfortunately, the biggest risk to loss is the exchange rate risk, which is uninsured. The exchange rate risk is why many crypto-based savers utilize stablecoins as they pin the value of the cryptocurrency to a standard fiat based currency (for example – USD, CAD, AUD, GBP).
Withdraw Limits
Per federal regulation D, variable rate deposit accounts at banks and credit unions no longer have limits to the number of transfers as of April 2020. The previous limit of 6 transfers was lifted in April 2020 as Covid-19 caused millions of Americans to lose their jobs, struggle to pay bills and needed to draw upon their savings in a time of crisis. Double check with your institution so you know what their limitations are so as to avoid excess transaction fees.
Crypto savings accounts, on the other hand, can have tighter restrictions on withdrawing funds. Some crypto-based deposits are contractual and you have to keep your deposit on hand for a certain time period limiting your ability to withdraw. Other crypto-based deposits may be flexible, but offer a lower rate of return for that flexibility. Lastly, some institutions charge set up fees too.
As crypto-based savings accounts are a relatively new product, regulation surrounding them hasn’t been established so check with the institution regarding their limitations and fees before making your deposit.
Interest Calculations and Interest Deposits
Another major difference in these accounts is how interest is calculated and when your interest gets deposited.
Most banks and credit unions compound interest daily, weekly or monthly on your deposits. Compounding interest allows for the interest you’ve accrued to also earn interest.
With crypto-based savings accounts however, simple interest is generally applied. That means your initial principal is the amount to which interest calculations are made.
One interesting advantage to crypto-based savings accounts is that many institutions actually deposit your interest in shorter time increments like daily or weekly rather than one interest deposit per month seen by banks and credit unions. This quicker release of the interest allows you to put it to use more quickly.
Final Thoughts
If you already hold cryptocurrencies, then moving your funds into an interest bearing account is a great strategy to earn while you hold.
That said, if you’re considering investing in cryptocurrency because of the enticing APYs you see on the savings side, be sure you fully understand the inherent risk of these highly volatile digital currencies.
You’ll also want to study each account and crypto bank carefully as terms and conditions, interest rates, minimum deposits, types of cryptocurrencies needed and lock-up periods vary widely from account to account.
If you’re typically a conservative saver that generally invests in traditional CDs, savings accounts, money market accounts and the like, then these accounts probably aren’t going to be for you. They are also not a wise place to stash emergency funds or any funds you may need to convert to cash quickly.
Also keep in mind these are variable rate accounts that are subject to change at any time without notice.