3 Ways To Earn Interest On Your Crypto (2023 Updated)
A crypto interest account is a type of account that allows you to earn interest on your crypto holdings by lending them out, typically on a platform. There are two ways to earn interest on cryptocurrency: staking and lending.
Staking is a process where you hold your cryptocurrency in a wallet and help secure the network by validating transactions. In return, you receive a reward in the form of more cryptocurrency. Lending, on the other hand, involves lending your cryptocurrency to a borrower who pays interest on the loan.
The interest rates for staking and lending can vary depending on the platform and the cryptocurrency you hold.
Some platforms offer interest rates as high as 15%. However, it’s important to note that investing in cryptocurrency comes with unique risks that might make it unappealing to the typical income investor.
Different ways to earn interest on cryptocurrencies
There are several ways to earn interest on cryptocurrencies. One way is through staking. Staking involves holding your cryptocurrency in a wallet and helping to secure the network by validating transactions. In return, you receive a reward in the form of more cryptocurrency. Another way is through lending. Lending involves lending your cryptocurrency to a borrower who pays interest on the loan. The interest rates for staking and lending can vary depending on the platform and the cryptocurrency you hold. Some platforms offer interest rates as high as 15%.
You can also earn interest on your crypto holdings by depositing them in a crypto interest account. A crypto interest account is a type of account that allows you to earn interest on your crypto holdings by lending them out, typically on a platform. The interest rates for these accounts can vary depending on the platform and the cryptocurrency you hold.
Another way to earn interest on your cryptocurrency is through yield farming. Yield farming is a process where you lend your cryptocurrency to a liquidity pool, which is a smart contract that holds funds from multiple users. In return, you receive a reward in the form of more cryptocurrency. The interest rates for yield farming can vary depending on the platform and the cryptocurrency you hold.
It’s important to note that investing in cryptocurrency comes with unique risks that might make it unappealing to the typical income investor.
Staking
Staking is a process where you hold your cryptocurrency in a wallet and help secure the network by validating transactions. In return, you receive a reward in the form of more cryptocurrency.
Cryptocurrencies that allow staking use a “consensus mechanism” called Proof of Stake, which is the way they ensure that all transactions are verified and secured without a bank or payment processor in the middle.
If a cryptocurrency you own allows staking, you can “stake” some of your holdings and earn a reward over time. The reason your crypto earns rewards while staked is because the blockchain puts it to work.
Staking is available with cryptocurrencies that use the proof-of-stake model to process payments. This is a more energy-efficient alternative to the original proof-of-work model. Staking cryptocurrencies is a process that involves committing your crypto assets to support a blockchain network and confirm transactions. Staking has become a popular way for crypto investors to grow their holdings without selling their digital assets.
It’s important to note that investing in cryptocurrency comes with unique risks that might make it unappealing to the typical income investor.
Earn Interest with Crypto Lending
Cryptocurrency lending is the process of depositing cryptocurrency that is lent out to borrowers in return for regular interest payments. Payments are made in the form of the cryptocurrency that is deposited typically and compounded on a daily, weekly, or monthly basis.
There are two main types of crypto lending platforms: decentralized crypto lenders and centralized crypto lenders. Both offer access to high interest rates, sometimes up to 20% annual percentage yield (APY), and both typically require borrowers to deposit collateral to access a crypto loan.
Crypto lending platforms offer opportunities for investors to borrow against deposited crypto assets and the ability to lend out crypto to earn interest in the form of crypto rewards. Lending platforms became popular in 2020 and have since grown to billions in total value locked on various platforms.
Crypto loans are typically offered as collateralized lending products, requiring users to deposit from a minimum of 100% (and up to 150%, depending on the lender) in crypto collateral to borrow cash or cryptocurrency. Like traditional loans, the interest rates vary by platform and require monthly payments.
Unlike traditional loans, the loan terms for cryptocurrency can be as short as seven days and may go up to 180 days and charge an hourly interest rate, like Binance. Then there are other lenders who offer an indefinite line of credit instead, like Nexo, which offers 0% APR.
It’s important to note that investing in cryptocurrency comes with unique risks that might make it unappealing to the typical income investor.
Bitcoin ETF Token – Earn Interest on Crypto
Bitcoin ETF Token is a project that rewards users as the ETF approvals advance. It is a token directly linked to the Bitcoin ETF approval. The project has just launched as a presale, racking over $15K in minutes.
The token is deflationary and aims to reduce the tax on transactions, initially from 5% to 1%, for each of the enumerated events that are achieved.
An ETF (Exchange Traded Funds) is a fund based on the evolution of a stock index by replicating the rise or fall of the prices of the assets concerned. A Bitcoin ETF is therefore based on the price movements of Bitcoin.
There are two major types of Bitcoin ETFs: Bitcoin ETFs on futures (forward contracts) and Bitcoin ETFs spot (cash). Bitcoin ETFs on futures invest in Bitcoin futures contracts, agreements that allow the purchase or sale of Bitcoin at a predetermined price on a future date
Cryptocurrency Savings Account
Cryptocurrency savings accounts that allow you to earn interest on your crypto holdings by lending them out, typically on a platform. These accounts offer a way to grow your money while still being able to access it when you need it. The interest rates for these accounts can vary depending on the platform and the cryptocurrency you hold. Some platforms offer interest rates as high as 36% annually.
Here are some of the most popular cryptocurrency savings accounts available today:
- Nexo: Offers up to 36% annual interest on your savings account.
- YouHodler: Offers a wide range of coins to choose from and great yield opportunities.
- Binance: Offers an all-in-one solution for cryptocurrency savings accounts.
- OKX: Offers attractive yields and is one of the best-known brands in the space.
Crypto savings accounts vs. crypto wallets
A cryptocurrency wallet is a software program that stores your private and public keys and interacts with various blockchain networks to enable users to send and receive digital currency and monitor their balance. Cryptocurrency wallets come in different forms, including desktop wallets, mobile wallets, hardware wallets, and paper wallets.
A cryptocurrency savings account is a type of account that allows you to earn interest on your crypto holdings by lending them out, typically on a platform. These accounts offer a way to grow your money while still being able to access it when you need it.
The interest rates for these accounts can vary depending on the platform and the cryptocurrency you hold. Some platforms offer interest rates as high as 36% annually.
In summary, a cryptocurrency wallet is a software program that stores your private and public keys and interacts with various blockchain networks to enable users to send and receive digital currency and monitor their balance.
A cryptocurrency savings account, on the other hand, is a type of account that allows you to earn interest on your crypto holdings by lending them out, typically on a platform.
Crypto saving account risks
Crypto savings accounts offer a way to grow your money while still being able to access it when you need it. However, it’s important to understand the potential issues you may run into with crypto-backed savings accounts:
- Volatile values: While you can earn a good interest rate on most platforms, the cryptocurrencies themselves can be extremely volatile with their prices.
- No insurance: Unlike a traditional bank account, these accounts don’t offer FDIC insurance.
- Liquidity issues: Some cryptocurrency-backed savings account providers require you to lock in your account balance for a specific amount of time.
- Security risks: Cryptocurrency exchanges and wallets are vulnerable to hacking and theft.
- Regulatory risks: Cryptocurrency is still a relatively new asset class, and there is a risk that governments could introduce new regulations that could impact the value of your holdings.
It’s important to note that investing in cryptocurrency comes with unique risks that might make it unappealing to the typical income investor.
How to Earn Interest on Cryptocurrency – Step by Step
There are several ways to earn interest on cryptocurrency. Here is a step-by-step guide to earning interest on crypto:
Open an account:
Visit a platform that offers cryptocurrency savings accounts, such as Nexo, YouHodler, Binance, or OKX. Open an account by providing your personal information and contact details.
Deposit funds:
Before buying crypto and earning interest, you will need to make a deposit. Instant payment methods accepted by these platforms include debit/credit cards, PayPal, Neteller, and other e-wallets. The minimum deposit is usually low, and payments made in USD are free of any charges.
Buy staking coin:
To earn interest on some platforms, you will need to buy a staking coin. Currently, the three options are Ethereum, Cardano, and Tron. Some investors will buy all three for diversification purposes.
Earn interest on crypto:
Depending on the chosen staking coin, interest will automatically be earned after 7-10 days. After the grace period has passed, interest will be earned for each day that the coins are held in the account. Penalty-free withdrawals can be made at any time.
DeFi and Yield Farming
Decentralized Finance (DeFi) is a financial system built on top of blockchain technology that enables peer-to-peer transactions without the need for intermediaries such as banks. DeFi applications are designed to be open-source, transparent, and accessible to anyone with an internet connection.
Yield farming is a way to put your cryptocurrency to work, earning interest on crypto. It entails lending your funds to other participants in the DeFi ecosystem and earning interest on these loans by utilizing smart contracts. Yield farmers can strategically move their assets across multiple DeFi platforms to capitalize on their crypto holdings. Yield farming, also known as liquidity mining, refers to the lending or staking of cryptocurrency in decentralized finance (DeFi) protocols to earn additional tokens as a reward. Yield farming has become popular because it offers the potential to earn higher returns compared to traditional saving methods.
Yield Farming
Yield farming is a process that allows cryptocurrency holders to lock up their holdings, providing rewards in the process. It involves lending out cryptos via DeFi protocols in order to earn fixed or variable interest.
The rewards can be far greater than traditional investments, but higher rewards bring higher risks, especially in such a volatile market.
Yield farming involves lending cryptocurrency via, in most cases, the Ethereum network. When loans are made via banks using fiat money, the amount lent out is paid back with interest.
With yield farming, the concept is the same: cryptocurrency that would otherwise be sitting in an exchange or in a wallet is lent out via DeFi protocols (or locked into smart contracts, in Ethereum terms) in order to get a return.
Yield farming is normally carried out using ERC-20 tokens on Ethereum, with the rewards being a form of ERC-20 token. While this might change in future, almost all current yield farming transactions take place in the Ethereum ecosystem.
The first step in yield farming involves adding funds to a liquidity pool, which are essentially smart contracts that contain funds. These pools power a marketplace where users can exchange, borrow, or lend tokens. Once you’ve added your funds to a pool, you’ve officially become a liquidity provider.
In return for locking up your finds in the pool, you’ll be rewarded with fees generated from the underlying DeFi platform.
Note that investing in ETH itself, for example, does not count as yield farming. Instead, lending out ETH on a decentralized non-custodial money market protocol like Aave, then receiving a reward, is yield farming.
Reward tokens themselves can also be deposited in liquidity pools, and it’s common practice for people to shift their funds between different protocols to chase higher yields.
Yield farmers are often very experienced with the Ethereum network and its technicalities—and will move their funds around to different DeFi platforms in order to get the best returns.
It is by no means easy, and certainly not easy money. Those providing liquidity are also rewarded based on the amount of liquidity provided, so those reaping huge rewards have correspondingly huge amounts of capital behind them.
It’s important to note that investing in cryptocurrency comes with unique risks that might make it unappealing to the typical income investor.
Important things to consider before investing
Before investing in cryptocurrency, it’s important to understand the potential risks and rewards. Here are some things to consider:
Volatility:
Cryptocurrencies are known for their volatility, which means that their value can fluctuate rapidly and unpredictably. This can make them a risky investment, especially for those who are risk-averse.
Regulation:
Cryptocurrencies are not regulated by governments or financial institutions, which means that there is no safety net if something goes wrong. This lack of regulation can make cryptocurrencies more vulnerable to fraud and scams.
Security:
Cryptocurrency exchanges and wallets are vulnerable to hacking and theft. It’s important to take steps to secure your crypto holdings, such as using a hardware wallet and enabling two-factor authentication.
Research:
Before investing in a cryptocurrency, it’s important to do your research. This includes understanding the technology behind the cryptocurrency, its use cases, and its potential for growth.
Diversification:
It’s important to diversify your crypto holdings to reduce risk. This means investing in multiple cryptocurrencies and spreading your investments across different sectors.
Investment goals:
It’s important to have clear investment goals before investing in cryptocurrency. Are you looking for long-term growth or short-term gains? Are you willing to take on more risk for the potential of higher returns?
Tax implications:
Cryptocurrency investments can have tax implications, so it’s important to understand the tax laws in your country.
Compounding Growth Benefits
Compound growth is a term used in business and investing contexts to describe the growth rate over multiple time periods. It is a measure of the constant growth of a data series.
The Compound Annual Growth Rate (CAGR) is one of the most accurate ways to calculate and determine returns for anything that can rise or fall in value over time.
It measures a smoothed rate of return. Investors can compare the CAGR of two or more alternatives to evaluate how well one stock performed against other stocks in a peer group or a market index. CAGR is thus a good way to evaluate how different investments have performed over time, or against a benchmark. The CAGR does not, however, reflect investment risk.
In simple terms, CAGR is a way to measure how much an investment has grown over a period of time. It is calculated by taking the ending value of an investment, dividing it by the beginning value, raising the result to the power of 1 divided by the number of years, subtracting 1 from the subsequent result, and multiplying by 100 to convert the answer into a percentage.
For example, if you invested $10,000 in a portfolio that grew to $19,000 over a period of 3 years, the CAGR would be approximately 23.86%. This means that your investment grew at an average annual rate of 23.86% over the 3-year period.
Crypto Interest Fees
Crypto interest fees are the fees charged by cryptocurrency exchanges or platforms for lending or borrowing cryptocurrencies. These fees are usually charged as a percentage of the amount borrowed or lent, and can vary depending on the platform and the cryptocurrency involved.
There are several platforms that offer crypto interest accounts, where users can earn interest on their crypto holdings. The interest rates offered by these platforms can vary widely, and are often influenced by market conditions and the supply and demand for the cryptocurrency in question.
Some of the best crypto interest rates in 2023 are offered by DeFi and CeFi platforms such as YouHodler, Celsius, and BlockFi. These platforms offer interest rates ranging from 4.8% to 16% for stablecoins, and up to 9% for cryptocurrencies such as Bitcoin and Ethereum.
It’s important to note that crypto interest rates are subject to change, and can be affected by a variety of factors such as market volatility, regulatory changes, and the overall demand for the cryptocurrency in question.
Crypto Interest vs Staking
Crypto interest and staking are two different ways to earn passive income in the crypto world.
Staking involves holding a certain amount of cryptocurrency in a wallet for a specific period of time to support a blockchain network. In return for staking, users earn rewards in the form of additional coins or tokens. Staking is a more active process that provides users with a bigger say in the network’s governance and decision-making.
Staking rewards are often more significant than traditional interest rates, and they vary depending on the network’s demand and the number of stakers. Moreover, staking requires a certain degree of technical knowledge and a minimum amount of cryptocurrency.
Crypto interest, on the other hand, involves earning a percentage of a cryptocurrency balance simply by holding it in a wallet or on a platform. Crypto interest fees are the fees charged by cryptocurrency exchanges or platforms for lending or borrowing cryptocurrencies. These fees are usually charged as a percentage of the amount borrowed or lent, and can vary depending on the platform and the cryptocurrency involved.
There are several platforms that offer crypto interest accounts, where users can earn interest on their cryptocurrency holdings. The interest rates offered by these platforms can vary widely, and are often influenced by market conditions and the supply and demand for the cryptocurrency in question.
In summary, staking supports the network, while earning interest simply generates passive income. Staking is a more active process that provides users with a bigger say in the network’s governance and decision-making.
Crypto interest, on the other hand, involves earning a percentage of a cryptocurrency balance simply by holding it in a wallet or on a platform. Crypto interest fees are the fees charged by cryptocurrency exchanges or platforms for lending or borrowing cryptocurrencies.
