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Crypto Interest Account VS. Traditional Bank Interest Account, What’s the Difference?

Traditional bank interest accounts (savings accounts) go as far back as the 18th century. As such, it’s status quo, and the average person is very comfortable investing in a bank savings account. However, crypto interest accounts, which are barely a decade old, are gaining momentum and paying mouthwatering APYs to customers. 

In this artic;e, you’ll see how bank interest accounts differ from crypto interest accounts and why you may want to invest your crypto assets in a crypto savings account.

An Overview of Crypto and Traditional Bank Interest Accounts

Crypto interest accounts are accounts that allow you to earn interest on your crypto assets. It’s somewhat similar to your bank savings account, and the interest amount often depends on factors such as the amount deposited, the duration of the deposit, the exchange, etc.

You can create a crypto interest account with exchanges or DeFi platforms that offer it. The money you invest in crypto interest accounts is used to lend crypto to loan customers, thus maintaining the lender-borrower balance on exchanges. This arrangement leads to a formidable crypto economy that caters to everyone’s needs.

On the other hand, traditional bank interest accounts are part and parcel of the agelong banking sector. They allow you to save money while earning interest on it. The interest is the amount the bank pays you as a depositor for investing your money with them. Banks usually take higher interests  from loan customers than the APYs paid to depositors, making up for the interest they pay investors.

Differences Between Crypto Savings Account and Traditional Bank Interest Account

Here are the most significant differences between crypto and bank interest accounts;

#1. Currency Type

Creating a crypto interest account will require you to deposit crypto assets. Many people go with the more popular cryptocurrencies while others go with stablecoins like USD, GUSD, etc. Stablecins are pegged to fiat currencies and are less volatile, plus they often yield higher APYs. Conversely, you’re required to deposit fiat or traditional money when opening a bank interest account.

#2. Access to Keys

Your bank interest or savings accounts, your money is yours 100 percent with your name to it. Whereas, crypto interest accounts temporarily hand your crypto keys to other customers to use your crypto deposit for the agreed savings term. Once the interest term expires, the borrower pays you interest on your crypto assets.

#3. Withdrawal Limits

You can withdraw multiple times a month from your bank savings account. But it’s not that easy with crypto interest accounts because there may be restrictions or high charges meant to discourage frequent withdrawals. But on a good note, restricting withdrawal helps you earn more crypto.

#3. Percentage Yields

You can earn yields of up to 8% and above in crypto interest account. This is way bigger than what’s obtainable with traditional bank interest accounts. As a growing financial system looking to compete with the well-accepted banking industry, crypto savings accounts offer higher percentage yields to attract more investors. As a result, there’s a spike in crypto fund supply and demand, which further improves interest rates.

#4. Interest Type

Crypto interest accounts rarely accrue compound interest, unlike bank interest accounts. Compound interest can means interest earned on your interest. For instance, you earn $5 on your $1000, then you earn another $0.05 on the $5 interest, and so on. That’s how compound interest works, and they are more accessible through bank interest accounts.

#5. Insurance

Traditional bank accounts make it very easy to get insurance for your deposits in different ways. By default, they usually come with a $250,000 FDIC insurance. Crypto interest accounts, on the other hand, rarely have FDIC insurance. So, you may want to see your crypto savings account as any of your businesses and bear every responsibility that comes with it.

Source of Funds for Paying Crypto Interest to Investors

First, you must remember that crypto exchanges have various ways of making profit, providing funds for paying investors. However, they charge relatively higher interest rates to loan customers. As such, there’s a lender-borrower balance and extra money to pay investors and keep the profit for the exchange.

Bank interest accounts yield 0.01% to 0.60% APY. Crypto interest accounts produce much higher yields and can range from 4% to 17%. You can create crypto savings or interest accounts on the following platforms; BlockFi, YouHolder, Gemini, Crypto.Com, Hodlanut, Celsius, Ledn, Nexo, etc.

Conclusion

Crypto interest accounts and bank interest accounts perform virttually the same function of allowing you to invest your funds and earn interest on them. You can see that while bank savings accounts are insured and produce compound interest, crypto interest accounts produce better yields overall.  

Written by Anthony Fernandez
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