Most of you have heard about cryptocurrencies like Bitcoin – either via friends or directly from the media. Some of you may also have invested in one or the other cryptocurrency based on advice from family and friends. And the majority of you are keeping those coins in a crypto wallet, where the coins gather dust and don’t do anything for you. That has to change!
Crypto Wallet vs. Crypto Savings Account
A crypto wallet is not the same as a crypto savings account, with the main difference being that the latter accrues interest whereas a crypto wallet doesn't. When you just keep your coins in a wallet where you own the private keys or in an exchange wallet, then your investment will not earn any interest – assuming you are not withdrawing any coins, then the number of coins will always remain the same.
This applies to almost all cryptocurrency wallets out there, but thanks to the inventions coming from the DeFi (decentralized finance) space, some wallets are now able to accrue interest for you. These kinds of wallets can be found on platforms such as Cake DeFi and are easily accessible for anyone.
Putting your coins into a crypto savings account can be quite lucrative, but it also comes with some limitations: For instance, you are not able to freely transfer your coins in and out of such an account. Some of these crypto saving wallets lock your coins away for a few days up to a few weeks, depending on the amount of interest they pay you. If you don’t need immediate liquidity on your investment, then holding your coins in a crypto savings account would make more sense than keeping your coins in an ordinary crypto wallet.
How to get started with a crypto savings account
The first thing you have to do when you want to invest your crypto into a crypto savings account is to compare account providers. Not every provider is the same and differs along some crucial factors. The following 3 factors should always be considered when you select a crypto savings account provider.
- Safety: It is the most important factor, and you should invest enough time to look closely at the providers you are considering and what they have to offer. The main reason for this is that many crypto savings accounts do not offer deposit protection like regular banks do, and thus you should always consider the financial stability of the company and its cold storage solutions to keep your investments safe.
- Supported Coins: Not all coins are equally well supported across all platforms, and no account provider can offer interest on every single coin in the market. If you already own a cryptocurrency, then make sure that it’s also supported by the respective platforms.
- Purchase availability: If you aren't already a proud owner of a cryptocurrency, yet would like to take advantage of the high interest rates of crypto saving accounts, then you should also make sure that the account provider has direct market access to allow you to directly buy the coins you are keen on investing in. For example, Cake DeFi allows you to quickly purchase cryptocurrencies using a number of purchase methods, and it also provides savings account access.
How crypto savings accounts work
A cryptocurrency savings account works in a similar fashion to traditional savings accounts you know from your bank. When you put money into a savings account, then you grant the bank permission to loan out the money to bigger institutional banks and investors. In return, you receive a pre-set amount of interest, paid directly into your account.
The very same idea applies to a cryptocurrency savings account, where you invest your funds into popular coins like Bitcoin, Ethereum or DeFiChain’s DFI. These funds will then be loaned out by the savings account provider to external partners or borrowers, and in exchange, you will receive an annual percentage yield. The good thing about a cryptocurrency savings account is that you can also limit your exposure to highly volatile assets like Bitcoin or Ethereum by investing via stablecoins pegged to the US-Dollar.
A few important differences between a traditional savings account and a cryptocurrency savings account have to be addressed:
- Market risk: Due to the volatile nature of the cryptocurrency markets, there is a chance that your investment may lose value. Hence, you should think about a cryptocurrency savings account more as a vehicle to invest your money rather than as an alternative to your existing savings account (assuming you are not investing in stablecoins like USDT or USDC).
- Yield: Traditional savings accounts offer an annual interest rate of anywhere from 0% to 0.5% APY. The yields of cryptocurrency saving accounts are often much higher. On Cake DeFi you can receive up to 8% APY on stablecoins pegged to the US-Dollar like USDT or USDC, making it 40 times more lucrative than any traditional savings account out there.
Enter the cryptocurrency market?
The big question is: Should you now open a cryptocurrency savings account? There is no clear answer to that, because it depends on what you’d like to achieve with your funds. A cryptocurrency savings account produces well above average yields for long term investors, yet with an undeniably higher risk than traditional banks, assuming you are not mainly using stablecoins that are pegged to the US-Dollar or other fiat currencies.
Therefore, you should never put more money into the crypto market than what you can afford to lose. If you’d like to be on the safer side though, then look no further than stablecoins like USDT or USDC. Both stablecoins can get you well above average yields of 8% APY.
Cake DeFi just recently introduced its new cryptocurrency saving account product for USDC stablecoins called USDC Lending. Investing via Cake DeFi is super easy and straightforward.
If you haven’t yet opened an account with Cake DeFi yet, then you should take advantage of the sign-up promotion, where you can get an immediate US$ 20 deposited directly into your cryptocurrency savings account.