Disclaimer: I am not a financial advisor. You are trading and investing at your own risk and should consult a financial advisor for any investment decisions. Do your own due diligence when considering investing, and information about the crypto savings account is for education/informational purposes only. This article serves as educational and entertaining content, not investing advice.
You may have been like me when you have viewed the advertisements about earning crypto through a crypto savings account.
And being able to earn up to 14% on these savings accounts is an attention grabber to most. Where else are you going to find 14% interest rates? The answer is not many places.
So naturally, as I try to be curious, I was prompted to look into this a little more and figure out whether opening an account would be a worthy financial move.
Now, this is where this article has come into play. To display my findings from a bit of research and share my own few thoughts about the account while admitting if I’ll open an account or not.
I won’t attempt to sell you on which account to open with which provider. Just provide a valuable and interesting article to your eyes.
What is a crypto Savings account?
We are all accustomed to what a traditional savings account is. I’m sure some reading have this type of bank account even then.
Yet, for clarification, a savings account is a type of account typically offered by banks and financial institutions that allows you to store money for a specified amount of interest. It can be dictated on the bank’s standards, but those of the Bank of Canada’s standards as well.
The crypto savings accounts holds a similar definition, but instead of earning money as interest payments, users can instead earn designated crypto of their choice.
Very exciting, isn’t it? I would agree, and in fact, the rates can be much larger than what you would find through the large Canadian banks and institutions.
But before you and I jump to the conclusion, we must continue to learn a bit more.
How do they work?
It’s based on the premise of a traditional savings account. Open an account, deposit some money, and earn interest.
To describe in further detail, you would also pick a platform to open an account with. Each platform will offer different currencies you can use to fund and earn interest.
Crypto.com offers crypto savings accounts, and here are just a few of the many cryptos you can fund and earn interest from:
– Shiba Inu
Here’s a significant difference, though. The interest rates can be much higher than just the average interest rate from banks or institutions; they could be double, triple, or more of the account.
Payouts of interest can be weekly or monthly, while as well compounding. This means you can hold the interest in the account, and whether the interest payout is every month or week, the interest will be compounded.
As well, funds can be withdrawn at any time; just consider the fees associated with doing so.
How much crypto can you earn?
The answer to this obviously depends on the provider. But it can also depend on the amount of the currency held into this type of account.
Providing that I talked about crypto.com, I’ll create a table of just a few of the rates you can earn on specific coins. Note these rates are based on a 3-month term:
|Amount Held:||$500 or Under||$5,000||$50,000 or More|
This is also the section where I’d encourage you to look more into the rates that each platform offers, which serves as an example.
As you can see, Tether is the highest among these in each category, which seems lucrative, but only if you’re a big believer in Tether, I might add.
I must add that the rates are subject to change from the providers, so it is good to check the rates regularly.
What crypto can you earn?
As established, there are numerous amounts of cryptos that you can earn. But again, this is based on your provider.
Celsius and crypto.com seem to be two providers that offer numerous currencies.
What are the fees associated with the account?
I searched around for what type of fees would be associated with these accounts. Through my small amount of searching, I concluded that the only fee associated would be the withdrawal fee to cash out of currencies.
Of course, there may be a transfer fee to transfer the currencies to another wallet Therefore, it’s best to view what each platform charges for its fees.
How much risk is there with these accounts?
I would say that this is the most critical question to ask because this isn’t any typical savings account.
The first issue with these types of accounts would be that there is no CDIC insurance. We will discuss this further below.
The pricing volatility for currencies is actual. Just look at the past few months. I’m sure your favourite currency has dropped over those past few months. Well, if you’re going to earn some crypto through the account, the volatility will not change at all.
Hell, you have to be very careful because some minor stablecoins could drop to zero altogether. So not only will you lose your principal amount, but you’ll also lose all the interest compounded! Another reason for everyone to research the crypto they want to invest in.
Counter-party risk is another risk. With traditional savings accounts, banks will take your money, hold a certain amount of it if you need to withdraw, and lend out the rest. That’s how they can pay you back and keep profits for themselves.
So with a cryptocurrency account, who are they lending to earn you that interest rate promised? If they ever were to default on payments or could not afford to pay anything back to the asset holder, well, that causes a lot of concern and issues.
And who is to say that they will be able to give you your principal back?
Therefore, to state that there is little risk with these types of accounts would be untrue. There is a significant chance that you could lose most, if not all, of your investment in these types of accounts.
Are the amounts secured?
There is no CDIC protection on your deposits.
For those not familiar with the CDIC, it is a corporation that protects a limit of $100,000 on deposits made into a savings account. The CDIC is associated with the central Canadian banks, credit unions, and other companies governed by the Cooperative Credit Associations Act.
Not all exchanges or platforms will offer any protection either, furthering the risk that you can lose most or all of your investment.
But a popular platform such as Ledn, “is incorporated under the Federal Laws of Canada. As such, Ledn is held to the highest standards of consumer protection and data privacy. Ledn is not an ICO.”
So while the idea that they are held to high standards of consumer protection and data privacy are very excellent as an investor, I still don’t believe they can fully protect your assets.
Earnings from savings vs. Crypto Savings account
This is an interesting scenario I wanted to include, but to be honest, it’s challenging to answer.
Here’s how I want to provide a scenario.
I would just look at the difference over 10 years with a 6% vs. 1.5% interest rate you would earn, but it isn’t that simple.
With crypto, the value can lose its value over time. At the same time, your investment can increase in value over time.
So, in all reality, here’s how it could look.
With a traditional savings account, you have a reasonable idea of what you can earn. With crypto, it’s the complete opposite.
So, what are the pros and cons?
– Chance to earn a high rate of interest
– Can beat inflation
– Earn returns on crypto if you’re a long-term holder
– Interest is compounded and paid weekly/monthly
– Can withdraw anytime
– Earn interest on various currencies
– Very risky
– Chance that investment goes to zero
– Chance investment does not beat out traditional savings accounts
– What could be significant withdrawal fees
– Deposits not protected
– Withdrawals may not be readily accessible
– Interest rates subject to change
Would I use it?
I can’t deny that the crypto savings account genuinely intrigues me. With having briefly looked into this type of account and through my findings established in this writing, I can say that in fact, I will open a crypto savings account.
I must state that I don’t think this is a great idea to throw an entire emergency fund into. In fact, it’s a terrible idea to throw all your savings account into just to attempt to double or triple it.
An emergency fund is to provide security against the future for those unprepared events life throws at us. Even if it is tempting to grow our money and be further prepared, the volatility that comes with crypto makes it not worth it.
One day you may be fully prepared and another you may not have enough to pay for certain costs.
However, I think since I’m willing to speculate a bit and to bear the risk, the reward can be worthwhile.
And that is my rationale for being willing to open this account.