A crypto savings account works the same way as traditional savings account in that the cryptocurrency exchange uses your deposits to make loans to other users on the platform. The difference is that the process uses a cryptocurrency, such as bitcoin or ethereum, rather than fiat money.

Typically, existing assets are transferred from your crypto wallet to your savings account. You can, however, buy cryptocurrency on the platform to invest in. The cryptocurrency exchange and its account offerings will determine the specific cryptocurrencies you can deposit into your savings account.

The interest paid in exchange for storing your deposits is usually in cryptocurrency and is variable. It is determined by the supply and demand for the specific cryptocurrency. Depending on the account, you can earn simple interest or reinvest your earnings to benefit from compound interest.

This article will look at the benefits of having a crypto savings account. Follow on.

1.      Transaction Speed

If you want to send money to someone in the United States or any other country, there are a few faster ways to transfer money or assets from your crypto savings account. Most transactions at US financial institutions are settled in three to five days. A wire transfer typically takes at least 24 hours to complete. Stock transactions are settled in three days.

However, one of the benefits of cryptocurrency transactions is that they can be completed in minutes. When the network confirms the block containing your transaction, it is fully settled, and the funds are available.

2.      Opportunity for Diversification

Investing in cryptocurrency alongside stocks, bonds, and cash savings accounts spreads your risk across multiple investments. When you don’t have all of your funds invested in one type of asset, you can reduce the impact of certain investments losing money.

3.      Flexibility

You can easily transfer your cryptocurrency using a flexible cryptocurrency savings account. You also have many options for the types of cryptocurrencies you can deposit, allowing you to find an exchange that works for you.

4.      Higher Interest Rates

Cryptocurrency asset rates can far outperform traditional savings accounts and certificates of deposit. For example, you could earn 10% APY on one type of cryptocurrency and 1% APY on another, compared to 0.08% APY on a traditional savings account.

5.      Accessibility

Anyone can use cryptocurrency. All you require is an internet-connected computer or smartphone. Setting up a cryptocurrency wallet is incredibly quick compared to opening an account at a conventional financial institution. Credit and background checks are not performed.

With the help of cryptocurrency savings accounts, those without bank accounts can access financial services directly. For various reasons, a person might be unable or unwilling to open a traditional bank account.

6.      Diversification

Cryptocurrency saving accounts offer investors an alternative to traditional financial assets such as stocks and bonds. While there is limited historical data on the price action of the crypto markets compared to stocks or bonds, the prices appear to be uncorrelated with other markets. As a result, they can be a good source of portfolio diversification.

You can generate more consistent returns by combining assets with low-price correlation. If your stock portfolio falls, your cryptocurrency asset may rise, and vice versa.

7.      The Learning Curve

Earning money by investing directly in DeFi protocols and liquidity funds requires some knowledge of the jargon and technicalities. On the other hand, crypto savings accounts typically include an easy-to-use interface and step-by-step instructions. The operation is also similar to that of traditional savings accounts. As a result, even if you’re a beginner, you’ll be up and running in no time.

8.      Security

Cryptocurrency is a type of decentralized finance or DeFi based on a peer-to-peer system known as the blockchain. It is a separate system from centralized finance governed by the FDIC and SEC. As a result, consumer protections such as FDIC insurance that you may be accustomed to will not apply here.

Research well-established cryptocurrency platforms that prioritize security to reduce risk. Two-factor authentication is useful, but cold storage — or storing your assets offline in a less vulnerable location — is far more powerful. Nexo extends coverage by collaborating with third-party insurance companies to protect your assets from breaches or employee-related theft.

9.      Transparency

All cryptocurrency transactions are recorded on the publicly available blockchain ledger. Anyone can use tools to look up transaction data, such as where, when, and how much cryptocurrency someone sent from a wallet address. Anyone can see how much cryptocurrency is stored in a wallet.

This level of transparency has the potential to reduce fraudulent transactions. Someone can demonstrate that they sent money and that it was received or that they have the funds available for a transaction.

Types of Cryptocurrency Savings Accounts

·       Flexible Cryptocurrency Savings Accounts

Some crypto savings accounts are flexible, allowing you to deposit and withdraw funds whenever possible. Interest is usually calculated daily, and the proceeds are deposited daily or weekly. However, you may obtain a lower interest rate because of the flexibility available.

·       Fixed Cryptocurrency Savings Accounts

Fixed accounts, like certificates of deposit, lock in your funds for a set period. For example, you could agree to hold a certain amount of bitcoin for 90 days in exchange for a higher interest rate. After the locked-in period expires, you can redeem your funds and interest or reinvest for additional fixed-interest cycles.

Bottomline

Now that you understand how crypto savings accounts work, you should spend some time researching the various platforms that provide this service. What may differ are the interest rates they offer and whether or not there are any holding commitments. Always go with a platform you’re familiar with, preferably one that’s been around for a while and has a good reputation. You should also read their terms and conditions and look for platforms accepting insurer depositor funds.