Looking to boost your investment yield while dabbling in the world of cryptocurrency? A crypto savings account could be a way for you to dramatically increase your rate of return.
But these accounts don't offer the same safety that a bank or credit union savings account can offer. Before you decide to invest, it's important to understand how crypto savings accounts work and their pros and cons.
Once you understand how these accounts work, you'll also want to know where you can get the best yields. In this guide, we'll answer your most burning questions about crypto-based savings accounts and give our top picks for 2020.
Crypto Savings Accounts Vs. Regular Savings Accounts
What are the main differences between a crypto-based savings account and a regular savings account? Here are a few things that set them apart.
Your bank savings account comes with $250,000 of FDIC insurance. And there are ways to get even more insurance than that.
But there won't be any federal insurance offered on a crypto-based savings account. You can lose money (or crypto) in this savings account. So you should think of it more as an investment rather than a savings account.
In a normal savings account, the money is yours, full stop. In crypto-based savings accounts, your crypto keys are lent out to other people who can use the crypto for a certain period of time. In exchange, the borrower promises to pay you interest on the crypto that you lend them.
Yields on cryptocurrencies range from about 4% to 8% or more. This is significantly more than the yields on traditional savings accounts.
This is because crypto banks cannot “produce money supply,” so they have to attract investors with high yields. The supply and demand for crypto financing drives the interest rates.
In a traditional savings account, you can withdraw money up to 6 times per month without facing any penalty. However, crypto savings accounts may impose more restrictive limits on the frequency or amount that you can withdraw. Unfortunately, there’s no standardized guidance for withdrawal limits, so it’s tough to generalize on this point.
One odd facet of certain crypto-based savings accounts is that interest may not compound. That means your initial deposit grows over time, but the interest on the growth does not compound. You essentially have to spend or trade the interest to realize the gains.
Related: How Does Compound Interest Work?
Crypto Savings Accounts Vs. Crypto Wallets
How do crypto-based savings accounts compare with crypto wallets? These are the biggest differences that you'll want to be aware of.
When you have Bitcoin or another form of crypto in a wallet, the number of coins you own doesn’t change over time. With crypto-based savings accounts, the number of coins you own will increase over time (provided the crypto bank doesn’t fail).
Often with crypto savings accounts, when you deposit coins, you give up access to your keys. That allows the exchange to lend your crypto to other individuals. Some crypto investors find this to be unacceptable, so they choose to avoid savings accounts altogether.
This point is contentious among crypto investors, but some see crypto wallets as a very weak form of security. Losing your phone could mean losing all your money. Even if you have multi-factor authentication on your wallet, you could lose everything.
By contrast, crypto banks have built in redundancies to secure the crypto keys. These institutions take bank-level security to the next level.
Will You Make Money With A Crypto Saving Account?
If you deposit money into a crypto-based savings account, you can expect to earn interest, but the yield will be in the crypto-currency of your choice. If your goal is to make US dollars, you may not get the result you want.
Of course, some of the major crypto banks are offering fantastic yields (as high as 8.6%) on the USDC coin which has very close parity to the US dollar. That said, sudden fluctuations in demands (especially drops in demand) for the USDC could wipe out your initial investment and the subsequent returns.
A few of the crypto savings accounts (such as Linus and Outlet Finance) don’t require users to have any cryptocurrencies at all. Instead, investors deposit US dollars and receive interest in dollars. However, these accounts have the same risk profiles as other crypto accounts. Investors still have exposure to the volatile cryptocurrency market.
At the end of the day, crypto currencies have a risk profile that government-backed money does not. You may see fantastic returns, but it is not guaranteed. However, if you already own cryptocurrency (or want to own it), I see value in crypto savings accounts.
What Are The Top Crypto Savings Accounts?
Below you’ll see the top crypto-based savings accounts along with their top advertised yields on various crypto currencies. For more information about each company (along with some of the restrictions), read a bit further.
Note: These yields are subject to change at anytime. If you notice a difference, please let us know in the cmments!
Stable Coins (e.g. USDC)
With no account minimums, BlockFi is making high yields accessible to many crypto investors. The exceptionally high yield on BitCoin is intriguing for investors with less than 5 Bitcoin.
Investors with more than 5 Bitcoin will only yield 3.2%, however. So the more you have, unfortunately, the less you earn.
Linus is the crypto-based savings account that looks and acts the most like a (very) high yield savings account. Investors deposit US dollars and earn interest in dollars.
However, under the hood, Linus is lending out money to people buying Ethereum (it does not advertise any other pooling layers). This setup assumes a relatively stable price on Ethereum which investors need to understand before opening a savings account. Learn more about Linus by reading our full review.
Outlet Finance is an account that doesn’t require a lot of knowledge about specific cryptocurrencies because it only pays interest on US dollars. Users deposit dollars and earn dollar-based interest.
The only wrinkle is that your dollars are being lent out to buy Ethereum and other cryptocurrencies. Right now the company advertises interest rates of up to 6% on US dollars. Read our full review of Outlet Finance.
Coinbase is best known as a digital wallet. But it also serves as a digital crypto savings account for some customers. Eligible US based customers can earn 1.25% APY on US Dollar Coins.
Unlike other companies on this list, Coinbase doesn’t lend out it’s USDC. Instead, this is a way to earn a small amount of interest while you wait to make trades on CryptoCurrency. Plus, if you deposit $100 or more, you'll get a $10 bonus!
Read our full Coinbase review here.
Crypto.com advertises some of the highest interest rates on the market. But the terms to get these rates are very specific. Investors with smaller amounts of cryptocurrency are likely to find better yields outside of Crypto.com.
The platform pays interest on 15 traditional cryptocurrencies and 8 stablecoins. The yields are based on simple daily interest. And to get the highest yields you will have to keep your investment for at least 3 months.
YouHodler’s crypto-based savings accounts are high-yield and also seems to offer a lot of protections for investors. The company allows savers to withdraw from the platform at any time. But the minimum investment is $100 USD.
CoinLoan offers very high yields on both stablecoins and traditional cryptocurrencies. And it allows users to withdraw from the account at any time. Currently, CoinLoan is advertising rates as high as 10.3% per year with zero fees.
Celsius Network offers exceptional rates and bonuses for accepting your interest in its proprietary coin. Even with the high rates, you won’t face account minimums or lock ups on your keys.
Nexo boasts minimal lock up times (less than 24 hours), and third-party guarantees of it’s crypto assets. That makes it an appealing option with super high yields on US dollars and some of the highest rates on crypto currencies. However, it doesn’t clearly disclose how much you have to invest to achieve the highest rates of return.
Should You “Save” Money In Crypto Savings Accounts?
All of these “savings” accounts have one thing in common -- they're actually investments. While it's exciting to imagine returns in the realm of 4-10%, these returns are not guaranteed. Each crypto-based savings account involves exposure to the highly volatile cryptocurrency investment market.
If you're a believer in the future of cryptocurrency, opening a crypto savings account could be a great way to diversify your investing portfolio. But if you're looking for an actual FDIC-insured savings account for your emergency fund, these are our favorite high-yield options.
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him on the About Page, or on his personal site RobertFarrington.com.
He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.