Crypto savings accounts guide

The financial industry has witnessed a rising number of crypto savings accounts advertising earning rates as high as 14.5% APY (annual percentage yield) or more. But unlike traditional savings accounts, these interest accounts are built to hold your crypto investments. And they don’t come with the same safety nets you might be used to.

The more you learn, the better equipped you’ll be to decide if the rewards of this new breed of accounts outweigh the risks.

How to compare crypto savings accounts

Not all crypto savings accounts are created equally. Some may offer higher APYs, while others offer stronger security. And within these elements are often more nuanced tiers and distinctions you’ll want to understand before signing up.

Account types

As crypto evolves, so too will the types of savings and interest accounts you can choose from. Some crypto savings accounts offer limited services, while others are all-in-one platforms that work as part of a cryptocurrency exchange.

You’ll find 3 main ways to start earning interest on your crypto investment:

• If you’re new to crypto or don’t own any yet, consider a crypto savings account that allows you to deposit and withdraw in CAD while handling all the crypto transactions for you in the background.
• If you already own crypto, consider a crypto savings account which pays interest on your deposited cryptocurrency.
• To buy, sell and earn interest in one place, compare crypto exchanges like Gemini or Crypto.com, which lets you automatically earn interest on assets you buy or trade.

Supported coins

Many providers and platforms offer savings accounts limited to popular cryptocurrency like Bitcoin, Ethereum and Litecoin.

Some accounts don’t require you to deposit crypto to start, and so it may not matter which coins are accepted. For example, Linus (for US citizens only) allows you to deposit in USD and converts your dollars into the stablecoin USDC. It then lends it out to borrowers, who pay set rates that then get passed on to you in the form of an APY.

Interest and earnings

A top factor to weigh is the account’s advertised APY — or the return on your investment. Unlike traditional savings accounts, the APY reflects a percentage of the cryptocurrency in your account as an asset, which can fluctuate depending on supply and demand. And you don’t always earn your interest in the same way as you do for a traditional savings account.

You typically earn in-kind interest with crypto banking products — meaning, you get paid in the interest of the crypto you’re earning interest on. Because these accounts earn interest in-kind, volatility doesn’t power the return. For example, a 4% LTC account will yield 4% over the year. But if the price of LTC drops by 50%, you could end up with a lower cumulative total in CAD than your initial deposit.

Some platforms implement a split APY feature, where a percentage of returns are paid in a native cryptocurrency token. A crypto savings account may be advertised as having a 12% APY, but that high of a return requires you to receive 2% in the platform’s native coin. Or you might need to hold a specific number of the native coin before you’re eligible for the highest APY.

Interest payments too depend on the crypto savings account or platform you use. You could see your interest paid out in the same cryptocurrency you deposited, in a different cryptocurrency or government-backed fiat currency, like CAD.

Compounding and frequency of payments can also vary by account or platform. Most accounts compound daily, though a few compound monthly or weekly — or, like Crypto Earn, not at all.

Access to your investment

Some providers require you to lock in your crypto for a set time to earn the maximum APY — part of validation of your asset. Once it’s validated, it needs to be added to the blockchain before you can earn rewards on it.

For example, Crypto Earn’s account requires you to lock in the equivalent of $40,000 worth of its native Cronos (CRO) for 6 months to earn its high 14% APY.

Another factor to consider is how easily you can withdraw your initial and earned deposit. For example, Nexo Earn only gives you up to 5 free withdrawals a month, depending on how much of its native coin you keep in your account.

Private key control

Unlike traditional savings accounts that allow you control over your money, not all crypto savings accounts allow you to keep control over the keys to your crypto.

Noncustodial wallets like Coinbase leave you in control of the private keys to your cryptocurrency. You’re the sole owner of your cryptocurrency across transactions on the platform.

Custodial accounts like Nexo Earn require you to hand over your private keys, trusting the platform to act as the custodian for your crypto and manage it on your behalf.

Then there’s crypto savings accounts, where you don’t ever see the private keys to your assets. Rather, you deposit Canadian dollars into the account, and the platform works with a licensed money transmitter that manages any crypto transactions in the background.

Security

Cryptocurrency is a part of what’s called decentralized finance — or DeFi — which relies on a peer-to-peer system called the blockchain. It’s a system separate from centralized finance that’s regulated by the CDIC. Consequently consumer protections like CDIC insurance you might be used to won’t apply here.

You can mitigate risk by researching well-established cryptocurrency platforms that prioritize security. 2-factor authentication is good, but cold storage — or storing your assets offline in a place that’s not as easy to hack into — is much stronger. Platforms like Nexo Earn extend coverage by partnering with third-party insurance companies to protect your assets against breaches or employee-related theft.

Search the headlines and forums like Reddit for news on the platform you’re interested in to weed out negative coverage around known vulnerabilities.

Are crypto savings accounts safe?

Due to the volatile nature of the cryptocurrency markets, crypto savings accounts aren’t insured by a government body like the Canadian Deposit Insurance Corporation (CDIC) or Securities Investor Protection Corporation (SIPC). If the platform supporting a crypto savings account or wallet fails or is hacked, insurance isn’t in place to recover your funds.

How can I protect my funds?

Confirm if the platform offers its own insurance policy. Some crypto banks like Nexo Earn partner with insurers to offer a level of protection. Others like Crypto.com rely on a native cryptocurrency token as its store of value, which can be used to make up for lost funds under specific circumstances.

If a platform doesn’t offer protection internally, it may offer third-party insurance to protect your cryptocurrencies stored in your crypto savings account:

• BitGo. Among the largest institutional digital asset insurers, BitGo now secures digital assets up to a value of $100 million.
• Ledger. Known for its popular cold storage cryptocurrency wallets, Ledger now offers its enterprise-focused Ledger Vault, which comes with a customized crime insurance program that insures assets worth up to $150 million.
• Lloyd’s of London. A leading insurance marketplace, Lloyd’s of London now offers both institutional and personal protection of crypto assets. The service is provided through a partnership between Lloyd’s of London, BitGo and Coincover.

Carefully read any details of insurance protection to understand assets it does and doesn’t cover. It may protect only cryptocurrency and not any fiat cash reserves held on the platform.

3 benefits of crypto savings accounts

If you own crypto or are curious about buying it, a crypto savings account can help you earn money on your investment and even spend it on everyday goods and services.

1. High potential returns. Crypto savings accounts advertise rates as high as 14.5% APY, which dwarfs the 5.80% APY national average for traditional savings accounts.
2. Access to your crypto. Many crypto savings accounts allow you to link to a debit card or even pay utility bills from your account. This flexibility improves the functionality of your crypto that you’d otherwise need to convert back into cash before spending it.
3. Repeat customer benefits. The more you use a platform’s or exchange’s services, the greater your benefits may be. Celsius and Nexo Earn support graduated loyalty tiers that help you earn bonus rewards, loan discounts and free withdrawals as your total token holdings grow.

3 potential drawbacks of crypto savings accounts

Crypto savings accounts differ from traditional savings accounts in key ways you’ll want to weigh before signing up.

1. No CDIC insurance. Crypto savings accounts are not eligible for CDIC insurance. If a crypto bank fails or a hacker steals funds from the platform, those funds may never be recovered. Even with internal measures, cryptocurrency holdings are unlikely to be as well protected when compared with cash reserves held in a traditional bank account.
2. No control over private keys. When depositing cryptocurrency into a crypto savings account you may be required to relinquish control of the asset’s private keys. It is the private keys that dictate whether a cryptocurrency can be sold or transferred. By depositing funds into a third-party platform you’re trusting that chosen platform to look after your cryptocurrency correctly.
3. Withdrawal restrictions. Unfortunately, a crypto savings account is usually much more stringent than a traditional savings account. Since there’s no standardized rule, a platform is free to implement any policy that they feel works best.

How do I open a crypto savings account?

Each platform or exchange requires different steps to sign up — for instance, you don’t need crypto to start with Linus, whereas you do with Crypto.com.

To start, look for a Sign up or Register button on your platform’s site, and follow the steps required.

Platforms are required to comply with anti-money laundering regulations and “know your customer” policies that require government-issued ID, including photos, as well as proof of address.

Bottom line

Crypto savings accounts are now offering cryptocurrency investors a way to put idle cryptocurrency assets to work. The interest rates are multiple times higher than those the traditional banking sector offers now and the range of cryptocurrency asset accounts is constantly expanding.

While interest rates may be high, crypto savings accounts aren’t as well regulated as traditional savings accounts and there’s no CDIC protection due to the greater counterparty risk. Many accounts also have some limitations with cryptocurrency withdrawal and overall custody.

For those with substantial cryptocurrency holdings that are willing to overlook short-term market volatility, depositing a set percentage into a crypto savings account can help boost passive returns.

For more information on more crypto banking features check out our crypto banking homepage.