Through blockchain gaming, many who do not have bank accounts are introduced to cryptocurrency. They are introduced to other apps where they can store their earnings aside from their crypto wallets. One of these apps is Binance which offers a platform for crypto savings. These apps can be categorized as crypto savings accounts.
This article is not financial advice and this is to inform crypto enthusiasts of the available service related to cryptocurrency. Do due diligence in researching before investing in crypto.
What Is a Crypto Savings Account?
Similar to traditional savings accounts, crypto savings accounts (crypto interest accounts) store cryptocurrencies. The depositor will earn interest as time goes by. The deposited cryptocurrencies are lent to the borrowers for a certain period and have to repay the loan plus the interest.
The difference between traditional and crypto savings accounts is the interest that the depositor receives. Crypto saving accounts have higher interest rates than traditional banking.
Some popular crypto savings accounts are BlockFi, Gemini, Coinbase, and Nexo.
How to Earn Interest in Crypto
Crypto savings accounts offer annual percentage rate (APR) and annual percentage yield (APY).
APR is the monetary value that depositors earn by depositing their assets and making them accessible to lenders in the form of loans.
On the other hand, APY calculates the depositors’ return on their investment through compound interest. Compound interest is taking interest on the initial amount invested as well as on the interest accrued on that amount. Basically, the depositors are earning interest on interest.
How much interest a depositor can earn with a crypto savings account will depend on the platform used and the type of cryptocurrency deposited. The interest rate can change because of the condition of the market.
Potential Risks of Crypto Savings Accounts
There are potential risks in using crypto savings accounts despite a higher return because of the APR and APY.
Volatility of Prices. Because cryptocurrencies are highly volatile, the value of their digital dollars constantly goes up or down which can drastically affect the account. If the value drops there will be no value for the deposited cryptocurrency and interest earned.
There is No PDIC Insurance. Unlike traditional bank accounts, crypto bank accounts are not insured by the Philippines Deposit Insurance Corporation (PDIC). PDIC protects bank account holders in the Philippines in the event of bank failure or bankruptcy.
Limits on Withdrawal. There are some crypto savings accounts that cap the amount that a depositor can take from their account over a specific period. There may be fees to withdraw assets. This can be a hassle especially when the depositor needs the amount.
Loan Defaults. When a borrower fails to pay back their loan and interest, there is a possibility that the depositor can be affected by this and may lose a certain amount or worse. Collateral is given to lenders to cover any possible loss due to failed payments.
These crypto savings accounts can be a huge help for unbanked crypto enthusiasts because of the huge return they can get from depositing their cryptocurrencies and can be a good practice to save a portion of their earnings to either invest further in cryptocurrency or to liquidate for real-life expenses. But it is very important to do research on which platform or app they will use and always keep in mind the risks of using them.
Furthermore, these crypto savings accounts can also be a good practice for unbanked crypto enthusiasts to learn to put a portion of their earnings into savings accounts both in crypto and traditional banking and enjoy being rewarded because of the interest.
This article is published on BitPinas: What are Crypto Savings Accounts | How Much is the Interest?
Disclaimer: BitPinas articles and its external content are not financial advice. The team serves to deliver independent, unbiased news to provide information for Philippine-crypto and beyond.