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Top Crypto Interest-Earning Accounts, Ranked

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A real-time buyer's guide to the best cryptocurrency interest-earning accounts

In recent years, cryptocurrency interest-earning accounts are enjoying growing interest from crypto investors. The chance to take advantage of your digital assets and ensure a steady passive income stream without selling them appeals to a variety of market participants. From HODLers, through crypto miners, to companies and corporate investors - today everyone is enjoying the benefits of cryptocurrency interest-earning accounts. Our buyer's guide ranks the leading service providers to help you find the best choice for your cryptocurrency deposits. Find out which are the most reputable crypto interest-earning account providers and get familiar with their offerings in our ranking list below.

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Cryptocurrency Interest-Earning Accounts

Aave is a DeFi protocol that enables “flash loans,” collateral-free obligations that are borrowed and repaid in a single Ethereum transaction. If a borrower does not repay on time, the loan and any related actions are reversed. Anyone can contribute liquidity to the protocol and earn interest in the form of aTokens, which are pegged 1:1 to the value of cryptoassets deposited. Eligible assets include ETH, ERC-20 tokens, and stablecoins. Interest rates fluctuate based on flash loan fees and rates paid by borrowers. There are no minimums, maximums, or KYC. Aave is compatible with most major crypto wallets.

Rank
01
Reputation Score 983
Days on List 68
Links 2,830
Recent Tweets 4

Aside from being a leader in cryptocurrency lending services, Nexo is also renowned for its interest accounts. The platform allows its users to earn 8% interest per year while offering the flexibility of adding and withdrawing funds at any time. Nexo provides a 100% asset-backed guarantee using its portfolio of overcollateralized loans. The collateral of each loan is subject to custodial insurance of $100 million provided by the world’s leading audited custodian BitGo and the insurance leader Lloyd’s of London. Compound interest is paid out daily and without any fees. The platform supports both fiat and stablecoin interest-earning accounts. Supported digital assets include USDT, TUSD, USDC, PAX, and DAI.

Rank
02
Reputation Score 974
Days on List 301
Links 57,566
Recent Tweets 88

BlockFi is among the leading crypto interest account providers worldwide. The BlockFi Interest Account (BIA) lets you earn compound interest on your Bitcoin, Ether, Litecoin, USDC, and GUSD. By storing your digital assets at BlockFi, you can earn annual interest of up to 8.6% paid out in cryptocurrencies every month. Thanks to BlockFi's Interest Payment Flex feature, users can select a particular cryptocurrency for their interest payments and diversify their portfolios without purchasing additional digital assets. There is no minimum balance required to start using the platform. Withdrawals are often concluded on the same day, although BlockFi reserves up to 7 days to process a client fund withdrawal.

Rank
03
Reputation Score 962
Days on List 302
Links 308
Recent Tweets 6

Aside from being an established cryptocurrency loan service provider, Celsius Network also offers crypto interest accounts with up to 10% annual interest. The platform tries to be flexible and provide its users with the option to earn on their own terms. It doesn't require any minimum deposits - users can earn interest on $5 or $5 million. There are no associated fees and clients can make withdrawals at any time for any amount. Users are free to choose in which currency they want to have their weekly interest payment deposits. The platform supports a variety of digital assets, including BTC, XRP, LTC, ETH, BCH, XLM, and more.

Rank
04
Reputation Score 910
Days on List 301
Links 132
Recent Tweets 29

Oasis is a MakerDAO-affiliated dApp that lets users earn interest on Dai, a stablecoin that relies on smart contracts to keep parity with the U.S. dollar. Interest is paid according to the Dai Savings Rate (DSR), which is set by holders of the Maker token, MKR, and has been as high as 8.75%. The DSR is funded by stability fees paid by borrowers who open Maker Vaults to generate Dai in exchange for cryptocurrencies like ETH, BAT, and WBTC. Oasis is compatible with most major crypto wallets. Users must maintain an ETH balance to cover gas fees on the Ethereum network.

Rank
05
Reputation Score 773
Days on List 66
Links 1,330
Recent Tweets 8

Binance Savings is a service that allows you to deposit your cryptocurrencies into the platform and start earning interest. Users can take advantage of flexible and fixed deposits. The difference is in the duration and the interest rates. Users can take advantage of deposits with a duration as low as 14 days and earn interest up to 15%. The Flexible Deposits product supports Bitcoin (BTC), Binance USD (BUSD), Binance Coin (BNB), and Tether (USDT) while the Fixed Deposits product offers access to over 15 additional digital assets. Users are granted the flexibility to redeem their funds at any time. The accruing interest earnings are distributed on a daily basis for flexible deposits and on the redemption date for fixed deposits. Users can subscribe to Binance Savings with just a few clicks.

Rank
06
Reputation Score 691
Days on List 301
Links 1,731
Recent Tweets 0

Nuo Network is a platform that enables users to borrow and lend cryptocurrencies. Nuo is designed as a peer-to-peer marketplace that uses open-source smart contracts to connect lenders and borrowers and execute transactions between them. Users can start earning interest by signing up and adding an ETH or ERC20 token deposit to their Nuo accounts. Next, they have to create a debt reserve for a particular duration. Debt reserves are pools of tokens lent to borrowers based on their loan requests. The daily interest percentage users can earn depends on the specifics of the debt reserve. When the reserve's duration expires, the entire amount and the interest earned are automatically transferred to the user's Nuo account.

Rank
07
Reputation Score 669
Days on List 302
Links 146
Recent Tweets 0

Crypto Earn is a cryptocurrency deposit service from Crypto.com. It allows users to earn up to 8% p.a. on cryptocurrency deposits. Stablecoin investors can expect higher rates of up to 12% p.a. The size of interest earnings depends on the currency and the term of the deposit. All interest earnings are paid weekly in the cryptocurrency in which the deposit is made. Crypto Earn supports a variety of cryptoassets, including BTC, ETH, LTC, XRP, BNB, and more. Supported stablecoins include USDC, USDT, TUSD, and others. The Crypto Earn team promises to be continually looking at expanding its portfolio of supported assets.

Rank
08
Reputation Score 625
Days on List 302
Links 1,278
Recent Tweets 0

Gemini Earn is a flexible interest account for users of Gemini's cryptocurrency exchange. Participants earn up to 7.4% on their crypto, which is paid out daily and can be redeemed, reinvested, or traded. Earnings can be tracked via a separate interest-only balance or a combined trading balance. Eligible coins include major cryptocurrencies like Bitcoin and Ethereum, stablecoins, and several DeFi tokens. To run the program, Gemini partners with Genesis, a full-service cryptoasset prime broker. Gemini Earn has no minimums or transfer or withdrawal fees. It is available to customers in all 50 U.S. states.

Rank
09
Reputation Score 524
Days on List 68
Links 1,336
Recent Tweets 3

YouHodler offers cryptocurrency interest accounts that allow you to earn up to 12% a year. The procedure is pretty straightforward - the user deposits digital assets or fiat in his YouHodler wallet and then starts earning interest on them. YouHodler pays interest on Bitcoin, BNB, USDT, USDC, PAX, and TUSD deposits. If the user doesn't have such crypto he can convert it from other cryptocurrency or fiat currency. The interest payments are made in stablecoins or cryptocurrencies and are deposited directly in the wallet every month. All deposits are protected by YouHodler's own security fund of $1M. Users also are able to use the savings in their accounts as collateral for lending products.

Rank
10
Reputation Score 523
Days on List 302
Links 17,928
Recent Tweets 10

Cryptolend is an automated platform that allows you to start earning interest on your cryptocurrencies. Once you connect your Poloniex or Bitfinex account to Cryptolend, the automated bot starts searching for users that need margin lending services. Cryptolend's users can earn up to 15% interest, which can vary depending on the specific terms of each offer, as well as the asset. The platform supports a variety of cryptocurrencies, including BTC, ETH, NEO, LTC, and more. Cryptolend offers a free Basic account, as well as a Premium Membership account that comes at the cost of 3% of your gains. The perks of the Premium Membership account include VIP support, more flexible terms, higher frequency of bot responses, and more.

Rank
11
Reputation Score 341
Days on List 302
Links 67
Recent Tweets 0

The Nebeus Savings Account allows you to earn interest even if you don't currently have cryptocurrencies. You can sign up for a Nebeus account, deposit money, buy a cryptocurrency, and then place it in a crypto savings account. The monthly interest is automatically credited to your wallet. You can withdraw your profit whatever you want, without delays. Your deposited capital is deployed to crypto-collateralized loans that are fully backed by borrowers' collateral. You can open a Nebeus account with at least 0.06 BTC or 0.3 ETH. You can earn fixed interest in the range of 8.45% – 13.25%.

Rank
12
Reputation Score 202
Days on List 302
Links 5
Recent Tweets 0

Ledn provides credit and savings products, tailored to the needs of Bitcoin investors. The Ledn Savings account allows Bitcoin investors to earn compound interest on their Bitcoin deposits and grow their wealth. The Bitcoin savings accounts provide Ledn's clients with the opportunity to earn interest of 3.6% APY compounded monthly. Interest payments are calculated and paid out in BTC at the start of every month. Opening an account is a simple and straightforward procedure that takes no more than 2 minutes. Ledn is incorporated under the Federal Laws of Canada and is compliant with Canadian regulations.

Rank
13
Reputation Score 156
Days on List 301
Links 0
Recent Tweets 0

CoinLoan's Interest Account provides the chance to earn high-yield returns (up to 8% APY) by depositing crypto assets or fiat in the platform. The minimum deposit term is one day, and the maximum is unlimited. Interest is accrued daily and deposited directly into your wallet on the first day of the month. Users are free to withdraw funds at any time with a single click. The platform supports fiat (EUR), cryptocurrencies (BTC, BCH, ETH, and more), and stablecoins (TUSD, USDC, PAX, DAI, USDT). CoinLoan is registered and operates from Estonia.

Rank
14
Reputation Score 154
Days on List 302
Links 20
Recent Tweets 0

Frequently Asked Questions

  • What Are Crypto Interest-Earning Accounts?

    Crypto interest-earning accounts or crypto savings accounts are like bank savings accounts only customers deposit cryptocurrency instead of fiat. In exchange for their customers' trust, banks pay interest. Providers of crypto savings accounts do the same.

    Crypto Savings vs. Bank Savings

    Today, the yield on bank savings is close to zero. Crypto savings accounts pay up to 20%, letting depositors build bags or earn passive income, which can be spent online and at millions of brick-and-mortar shops using a crypto debit or credit card.

    That said, crypto interest-earning accounts carry risks. When a customer signs up with a bank, their main worry is inflation. Banks pay less than 1% interest, so it's likely that on withdrawal, money will have less purchasing power than when it was deposited. But few depositors fear that their money will be lost or stolen. In the United States, deposits are guaranteed by the Federal Deposit Insurance Corporation or FDIC. Most governments provide a safety net for bank depositors.

    Government insurance does not cover crypto interest-earning accounts.

    And though crypto savings pays better than banks, cryptoasset values fluctuate wildly. If a token's trading price craters, a deposit earning a nice APY could end up underperforming a traditional savings account. This is less a criticism of crypto interest-earning accounts than a reminder that crypto is a different game than retail banking.

    Crypto Savings Options

    Crypto interest-earning accounts first appeared in the late 2010s. Already, there are many quality providers competing for customers and their cryptoassets.

    All pay interest on cryptocurrency and most offer a mobile app and crypto-backed lending. Customers choose a provider based on its accrual and payout schedules, coins supported, or whether its service is custodial.

    It's common for interest to begin accruing on day one, but platforms have different schemes for calculating and paying interest. Both Nexo and BlockFi accrue daily, but only Nexo pays daily. BlockFi pays monthly. Celsius accrues weekly and pays out every Monday.

    While BlockFi sticks to stablecoins and major cryptocurrencies like Bitcoin (BTC), Ethereum (ETH), and Litecoin (LTC), Celsius supports high-cap coins, stablecoins, and a growing list of DeFi tokens.

    These DeFi or decentralized finance tokens – Dai, Compound (COMP), et al. – typify a blockchain-based movement that aims to free financial services from banks, brokers, and insurance companies. DeFi offers a number of advantages including self-custody and pseudonymity.

    Whereas centralized services like BlockFi take custody of customer keys, the alphanumeric series that correspond to blockchain addresses and represent crypto ownership, DeFi protocols Maker (MKR) and Aave (AAVE) let depositors earn interest without ceding their keys.

    And because DeFi protocols are non-custodial, there's no need to perform Know Your Customer or KYC checks. Anyone with a cryptocurrency wallet can earn interest without divulging personal details. Users of BlockFi, Celsius, YouHodler, Nexo, and other "CeFi" platforms are put through KYC at sign-up.

    How Can Yields Be This High?

    Though cryptoassets are volatile instruments, there is no additional price risk to depositing in a crypto savings account. Yet providers pay up to double-digit APY, and higher rates are offered to customers who buy in. For example, Celsius pays a 5% to 25% kicker to depositors who take interest payments in CEL, the platform's utility token.

    Celsius funds payouts with revenue generated from lending deposits to borrowers. BlockFi and Nexo do the same. In each case, crypto-backed loans are overcollateralized, which means that collateral exceeds the amount borrowed. Borrowers abide because the arrangement allows them to deploy their crypto without selling it. This is desirable for two reasons: selling is a taxable event, and it sacrifices future appreciation.

    A Ponzi scheme promises high returns with little or no risk. While it's true that crypto interest-earning accounts promise high returns with no extra price risk, they follow a model that banks have used for centuries. According to Celsius, the difference is that banks keep "over 80% of the profits... distributing these earnings to their shareholders." Top crypto savings providers share lending revenues with their depositors.

  • How Do I Earn Interest on Crypto?

    It's easy to earn interest on cryptocurrency. The process can be as simple as creating an account, completing a questionnaire, and linking a wallet or exchange address.

    How to Open a Crypto Savings Account

    The major providers have a similar onboarding process. The first step is to create an account and/or download an app, which may be available for mobile and desktop. After setting a password, secondary PIN, and security questions, applicants are put through Know Your Customer or KYC compliance.

    KYC is a series of questions that establishes an applicant's identity, preventing them from using a service for prohibited activities like money laundering or circumventing sanctions. When signing up for a crypto savings account, typical questions are name, date of birth, address, and citizenship status. Applicants are also required to upload an ID. This is often followed by left, right, and straight-on selfies. Depending on the platform, identity may be confirmed within minutes or hours.

    The next step is funding. Customers with supported cryptocurrencies can transfer those coins from an exchange account or wallet. Some crypto savings providers accept fiat. BlockFi lets users wire U.S. dollars for Gemini Dollars (GUSD), which can be swapped for any cryptoasset on the platform. Celsius partners with Simplex to allow customers to purchase crypto by credit card.

    Once an account is funded, customers begin earning interest. Generally, APY is highest on stablecoins, but there are DeFi tokens that pay just as well. Payout frequencies vary by provider.

    Is KYC Necessary?

    There's no getting around the account setup process. And unless an account is funded, there's no principal to generate interest. But KYC can be avoided.

    Many crypto savings providers take custody of user keys, strings of characters that represent cryptoasset ownership. By acting as middlemen, these platforms are obliged to perform KYC checks.

    It's a different story with DeFi or decentralized finance protocols like Maker and Aave. These platforms are non-custodial. Users keep control of their keys, interact straight from DeFi wallets, and all transactions are handled by smart contracts, computer programs that self-execute when agreed conditions are met. No central authority, no KYC.

    How Does Custody Work?

    There's a popular maxim in crypto – "Not your keys, not your coins." HODLers who take it to heart would never hand their keys to an intermediary. These folks only use non-custodial options. However, most depositors will entrust their keys to BlockFi, Celsius, Nexo, and other prominent providers.

    To safeguard customer funds, savings platforms partner with dedicated crypto custodians. BlockFi's primary custodian is Gemini, a trust company regulated by the state of New York. Gemini keeps keys in cold or offline storage across a distributed network of devices, each of which is housed in a monitored, access-controlled facility. Multiple signatures are required to move crypto from cold storage, and all employees are subject to regular credit and criminal background checks.

    Of course, a custodian's tech and governance only cover keys in its charge. It's just as important how a savings provider handles security. Like Gemini, BlockFi vets its employees. It also conducts cybersecurity training. Internal networks are restricted to authorized personnel. Whenever possible, these networks are shielded from the internet, and all data is encrypted whether transmitted or at rest.

    While it's true that anyone with a private key can access the funds with which it is associated, top providers of crypto interest-earning accounts ally with established custodians like Gemini, BitGo, and Ledger Vault, and most customers find that satisfactory. For the rest, the DeFi space offers several non-custodial options.

    Is Crypto Interest Taxable?

    Interest is income, and tax authorities expect their cut. In the United States, interest on cryptocurrency – and bank deposits – is taxed at the same rate as earned income. This is known as the ordinary income tax rate.

    Calculating the amount owed is straightforward. Imagine that Alice deposits 1,000 Chainlink (LINK) with BlockFi and earns 5.5% APY. Over the course of the year, she'll receive twelve monthly payouts totalling 55 LINK. If history is any guide, the USD value of LINK will be different each month. To find her taxable amount, Alice will have to sum the payouts at their respective fair market values when received. Fortunately, most crypto savings providers keep records detailing the current fiat value of each payout.

    Later on, if she sells some or all of her 55 LINK, any proceeds will be taxed at her capital gains rate. Capital gains taxes are calculated differently than income taxes and can be as low as 0%. If Alice does not sell – if she leaves the LINK to compound – she will not be liable for capital gains.

  • How to Choose a Crypto Interest-Earning Account?

    As of this writing, there are several high-quality crypto savings providers serving a growing crowd of customers. Both BlockFi and Celsius number their users in the hundreds of thousands. Nexo boasts a million-plus customers across 200 jurisdictions.

    The top providers have much in common, but there are differences that will delight or repel certain customers. The clincher could be a platform's accrual or payout frequency, support for a favorite altcoin, complementary services, or whether it custodies customer keys.

    Interest Accrual & Payouts

    It's the norm for interest to accrue from the day funds are deposited, but platforms have different schemes for accrual and payouts. While Nexo accrues and pays on a daily basis, BlockFi accrues daily and pays out once per month. Celsius accrues weekly and pays every Monday.

    Support for Altcoins

    These days, depositors can earn on a range of cryptoassets, but each provider supports a different set of coins. Of the major providers, BlockFi accepts the fewest cryptocurrencies. Its platform only takes stablecoins and top cryptos by market cap. Celsius supports established cryptocurrencies, stablecoins, and DeFi tokens like Kyber Network (KNC), Synthetix (SNX), UMA, and Uniswap (UNI).

    Stablecoins tend to pay the highest APY, but strong demand for a cryptocurrency will increase the rate a platform can charge for lending it. This boosts the yield paid to depositors.

    Complementary Services

    In addition to crypto-backed lending – and mobile apps for convenient account management – providers of crypto savings accounts dangle a range of complementary services to attract new users and keep existing customers in-house.

    A good example is Celsius' CelPay program, which enables quick cryptocurrency transfers among "Celsians" or members of the Celsius community. CelPay is available through the Celsius app, it is fee-free, and interest accrues immediately upon receipt.

    Nexo, which positions itself as "the world's leading regulated financial institution for digital assets," offers a suite of complementary services. Its dynamic credit line automatically increases (or decreases) with the value of cryptoassets pledged as collateral, allowing borrowers to spend crypto without missing out on price appreciation. Credit lines can be linked to a Nexo card, a Mastercard managed through the Nexo wallet app. For more on Nexo's product line, check out Flippening episode 64, The Evolution of Crypto-Backed Loans with Nexo co-founder Antoni Trenchev.

    Crypto.com, a platform that pays interest on more than 30 cryptocurrencies and stablecoins, has its own payment card, a Visa debit card that rewards users with up to 8% crypto-back on purchases plus perks like rebates on Netflix and Spotify subscriptions. Because it is a debit card, it must be loaded with cryptocurrency, which means that cardholders sacrifice future appreciation. That said, it is a popular card, and it drives users to the platform.

    Like Nexo, YouHodler helps customers make the most of bull markets. Its TurboCharge feature initializes a commission-free "cascade of loans," which are repaid through appreciation. TurboCharge is available for the same coins as YouHodler's interest-earning accounts. These include high-cap cryptocurrencies and alts like Binance Coin (BNB), Stellar (XLM), EOS, and Dash (DASH).

    Unless a customer needs support for a particular altcoin, there's little to differentiate providers beyond the complementary services they offer. If a customer can earn interest, grab a loan, spend crypto with a debit or credit card, and trade coins through a single interface, it's not just convenient. It's more secure.

    Services like Celsius, Nexo, Crypto.com, and YouHodler put applicants through Know Your Customer or KYC compliance, a series of questions to establish and verify identity. Given the recent spate of corporate data breaches, it may be best to divulge sensitive personal information as seldom as possible.

    Custodial vs. Non-Custodial

    Those who refuse to share personal or financial information can earn interest on cryptocurrency with non-custodial providers.

    To manage transactions, platforms like BlockFi, Celsius, and Nexo take custody of user keys. This is what compels them to perform KYC checks. DeFi or decentralized finance protocols like Maker and Aave are peer-to-peer. There's no authority to custody user keys, run KYC, or even to ensure that x interest is paid at y time to z wallet. Rather, transactions are facilitated by self-executing computer programs known as smart contracts.

    And yet, while pseudonymity and self-custody have their benefits, most consumers will trade both for a friendly UX. Centralized or "CeFi" services are easy to use. To secure customer keys, CeFi platforms engage dedicated custodians like Gemini, BitGo, and Ledger Vault. Judging by the numbers – hundred of thousands to millions of customers – it seems most folks are fine with that arrangement.

  • What Are the Benefits of Crypto Interest-Earning Accounts?

    Just as banks pay interest on fiat deposits, crypto interest-earning accounts reward customers for depositing cryptoassets. But while yields on bank deposits rarely exceed 1% – and may even go negative – the APY on cryptocurrencies can reach high double-digits.

    Putting Your Crypto to Work

    Before crypto interest-earning accounts, the only way to build bags was to flip fiat for cryptocurrency and either HODL and hope for the best or actively trade. Many crypto projects stall or perish as deadcoins, so blindly HODLing isn't a safe strategy. There are problems with active trading, too. Principally, traders pay to risk. There are fees for trading, and each transaction is a taxable event. Busy traders who hold coins for less than a year may face sizable tax bills.

    Interest-earning accounts opened a new path, enabling people to grow their crypto without actively trading. And while no crypto savings provider pays rates that approach the 10x or 100x available to active traders, coins deposited with a platform like BlockFi, Celsius, or Nexo will appreciate in value the same as they would on the outside. Depositors earn passive income and stay in the game.

    Profit-Sharing

    For hundreds of years, banks have operated according to the following business model: In exchange for regular interest payments, customers deposit money which is then lent to borrowers, who pay interest at higher rates than the rates paid to depositors. Profit is the difference between the two rates.

    Providers of crypto interest-earning accounts take another tack. Deposits are lent to "trusted institutional and corporate borrowers" like crypto hedge funds and cryptocurrency exchanges, but the spread between deposit and lending rates is not passed to shareholders. Rather, it is returned to depositors as yield.

    This is how crypto savings accounts pay such generous APYs.

    The top providers ensure high payouts in bull and bear cycles. This is partly achieved by getting loan customers to overcollateralize or pledge collateral at levels exceeding amounts borrowed. Borrowers not only pledge more than 100% but keep collateral at agreed percentages. Market corrections trigger alerts demanding additional collateral.

    The average Celsius borrower pledges up to 150%. Nexo's portfolio consists of credit lines that are overcollateralized by 200% to 500%.

    Trustworthy providers of crypto interest-earning accounts combine overcollateralization with a large, liquid reserve and guarantee that client funds are always senior to other obligations.

    Reward Programs & More

    Crypto savings customers can become communities. This thanks to big payouts and an enlightened business model, but reward programs, like those offered by Celsius and Nexo, deserve credit as well.

    Celsius customers or "Celsians" who deposit cryptocurrency and take payment in that coin receive a competitive APY, but customers who accept payments in CEL, the platform's utility token, earn much more. The bonus is based on the percentage of CEL in one's portfolio. It can be anywhere from 5% – for Celsians whose portfolios are 5% to 10% CEL – to 25% for customers whose holdings are at least 25% CEL.

    Nexo runs a similar program. Customers who "earn in kind" are paid at competitive rates. Those who take payment in Nexo tokens (NEXO) earn 2% more. The higher the percentage of NEXO in one's portfolio, the higher the base rate paid on cryptocurrencies, stablecoins, and fiat. Heavier NEXO bags also result in extra fee-free crypto withdrawals.

    Along with loyalty programs, providers of crypto savings accounts offer a range of complementary services. The most common is crypto-backed lending, which allows borrowers to spend cryptocurrency or purchase additional coins without selling. YouHodler's TurboCharge essentially automates this process. Other products and services include debit and credit cards, exchange trading, and cryptoasset wallets.

  • What Are the Drawbacks of Crypto Interest-Earning Accounts?

    Crypto savings accounts let HODLers generate passive income without forgoing price appreciation. A powerful proposition, but these accounts have their downsides.

    Like traditional financial institutions, some savings providers "lock" funds or limit withdrawals. However, unlike legacy checking and savings accounts, crypto deposits are not guaranteed by government-backed insurance schemes like the Federal Deposit Insurance Corporation or FDIC.

    While providers might seem equivalent, there can be major differences in the fine print. Customers may be asked personal and financial questions to satisfy Know Your Customer laws. Interest rates can fluctuate, and so can the value of crypto deposits.

    Same as the Old Bank?

    There are obvious differences between crypto and legacy savings accounts. Besides accepting cryptocurrency, crypto savings accounts pay higher rates – up to 20%. Contrast that with bank rates, which are usually less than 1%. However, when it comes to lock-ups and withdrawal limits, some crypto savings accounts stick to the old playbook.

    The rates on bank CDs scale with a depositor's time commitment. Similarly, Crypto.com's Earn program pays more the longer depositors agree to leave their cryptoassets on-platform. As of this writing, Crypto.com offers three "holding terms"– flexible, which pays the least, 1 month, and 3 months.

    BlockFi and Celsius limit the amount that depositors can withdraw. BlockFi fixes a 7-day limit for each cryptocurrency with caps based on value per coin: a bitcoin is worth more than a litecoin, so customers can withdraw fewer bitcoins than litecoins. Celsius sets a daily limit of $600,000, and withdrawals over $150,000 must be processed manually, which can take 24 to 48 hours.

    Lock-ups and withdrawal limits are about as close to the traditional bank experience as crypto savings gets. This is illustrated by the lack of government insurance on crypto deposits. In the First World, bank customers don't worry about their money being lost or stolen. Deposits are backed by the "full faith and credit" of the government. Cryptoassets are only as secure as one's private keys, the series of characters that represent crypto ownership and enable holders to sign transactions.

    The Fine Print

    Crypto savings providers calculate accruals in different ways. At BlockFi and Nexo, interest accrues daily. Celsius accrues on a weekly basis.

    But accrual frequency is less important than whether interest is compound or simple. Top providers like BlockFi, Celsius, and Nexo pay compound interest. Crypto.com does not. This is explained in a footnote to the main crypto.com/earn page, according to which, "The interest you receive is simple daily interest and will not be compounded."

    Over time, the difference between compound and simple interest can be huge. Take a $10,000 deposit. At 6% simple interest, the depositor's account would increase $600 per year. In ten years, they'd have $16,000. At 6% compounded daily, the depositor would have $18,373.

    When contracting for auto loans, mortgages, and life insurance, it's wise to read the fine print. The same is true for crypto savings accounts.

    KYC & Custody

    Another downside to crypto interest-earning accounts is Know Your Customer or KYC compliance. BlockFi, Celsius, Nexo, and other "centralized" providers take custody of customer keys and centrally manage everything from account setup to record-keeping. This custodial role obliges so-called "CeFi" platforms to perform KYC checks on new customers. At onboarding, users give up personal details like name, age, address, and citizenship status along with an ID scan and a selfie.

    The process is straightforward, and most would agree that it serves a purpose – it prevents criminals from engaging in money laundering and sanction breaking – but there are many who see it as an infringement on privacy rights and the rights of free people to transact.

    Such individuals opt for non-custodial services like Maker and Aave, which let depositors earn interest without entering personal details or surrendering keys. These decentralized or DeFi protocols are run by self-executing smart contracts, so there is no authority to perform KYC.

    Rate Reductions & Market Corrections

    When users take responsibility for their own keys, there's no need for KYC, which means there's no chance that personal or financial details will be discovered in a data breach. Self-custody also obviates the worry that a custodian's storage tech or governance will fail.

    But self-custody does nothing to address the other drawbacks of crypto interest-earning accounts. Cryptocurrency isn't covered by government insurance, deposits are only as secure as one's keys – whether self-custodied or in the hands of a third-party – and there could be important terms and conditions buried in the fine print.

    In addition, any crypto savings account – DeFi or CeFi – can experience rate changes. The Dai Savings Rate (DSR) is paid to users of the decentralized Maker protocol who deposit Dai, a dollar-pegged stablecoin. The DSR has been as high as 8.75%, but in March 2020, the Maker community voted to drop it to zero. As Bitcoin and Ethereum hit new highs, centralized BlockFi added new tiers for BTC and ETH deposits, reducing the interest paid to customers holding more than 1 bitcoin or 100 ETH.

    While rate reductions sting, they're nothing like the pain caused by market corrections. When a bank customer deposits fiat, they earn little – if any – interest. Inflation ensures that on withdrawal, their money will have less purchasing power than when it was deposited. But in mature economies, it's rare that fiat will collapse in value.

    In crypto, values change quickly. This is especially true for smaller cryptocurrencies, which have thinner trading markets than Bitcoin and other high-cap coins. Any cryptoasset can pump or crash, but big swings are likely to occur in markets with few active traders. In thin or illiquid markets, shifts in supply or demand can have an outsized impact on price.

    Most crypto savings providers stick to major cryptoassets, but Celsius and Aave support a range of tokens, some of which are obscure. When depositing low-cap cryptocurrencies, it's important to consider how a severe correction could affect returns.

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