How to earn interest from crypto saving accounts

The cryptocurrency industry has offered developers and investors the opportunity to introduce new financial tools providing plentiful options to earn passive income. Simply holding crypto has offered patient investors the chance to make gains over the years. However, there are various other ways to increase crypto assets’ stacks, even in bear markets.

Other than staking, crypto savings accounts allow retail investors to accrue their funds by earning interest on the crypto assets they deposit on specific cryptocurrency platforms if they agree to lend out their coins or tokens. Crypto interest accounts are particularly appealing because they distribute much higher returns than traditional bank savings accounts, considering that the average interest rate applied by a crypto savings account can be up to 7.5%, against the average 0.06% of bank savings accounts.

The difference in rates between crypto and traditional savings accounts is somewhat significant but comes with higher risks associated with the service. We’ll find out here how to access crypto savings accounts, the crypto interest rates and deposit terms and the risks associated with this type of financial instrument.

What is a crypto savings account?

A crypto interest account is generally a DeFi platform’s service that lets you earn interest on digital assets you’ve deposited and agreed to lend out in exchange for a return. This service is similar to a bank savings account that will lend out your money to other customers or financial institutions for a certain amount of time and will give you interest for that service.

By definition, blockchain technology encourages users to become self-sovereign and independent from third parties. However, intermediate companies have become a necessary component of the industry providing crypto savings accounts to those who want to enjoy the benefits of the technology without making too much effort to learn complicated and burdensome processes.

Other than convenience, these companies will also hold some of the risks involved and ensure depositors are paid first if adverse events like insolvency occur. Some companies are backed by insurance and work with well-established custodians to protect their customers.

How does a crypto savings account work?

Once you deposit your crypto assets into a savings account, you start accruing interest from day one. Most of the popular cryptocurrencies can be used in a crypto savings account, with the most picked being Bitcoin (BTC), Ether (ETH) and Litecoin (LTC), while many favor interest rates on stablecoins like Tether (USDT), USD Coin (USDC) and Pax Dollar (USDP).

By depositing your crypto assets into a savings account, you formally grant the platform the right to use your money for any purpose, from lending it out to investing it or staking it on your behalf. Primarily, it will be used for lending it out to earn high returns, some of which will be paid to you as regular interest payments.

Crypto savings accounts may offer you more favorable rates if you agree to lock up your crypto for a while or hold a platform-specific token. Nexo, for instance, increases interest rates by up to 4% for holders of the platform’s governance token.

How to invest in a crypto savings plan?

When you want to invest in a crypto savings plan, the first step is to pick the right account for you and get started as follows:

Choose a cryptocurrency platform you trust that offers realistic interest rates;
Transfer cryptocurrency to this chosen platform;
Follow the few simple steps to deposit your crypto assets into a savings account. Usually, these steps are straightforward, and you’ll be guided through the process by the platform;
Choose if you want to deposit your asset for a limited amount of time or select a flexible time that will allow you to withdraw your crypto at any time;
Start earning interest from the first day.

As mentioned, there are plenty of…