The central theses
- With BlockFi, you can use cryptocurrency to earn interest up to 8.6% APY. You can also borrow cash and buy or sell various cryptocurrencies through the platform and mobile app.
- The cryptocurrencies currently approved for BlockFi products and services include Bitcoin, Ethererum, Litecoin, Gemini Dollar (GUSD), Tether (USDt), Paxos Standard (PAX), USD Coins (USDC) and Pax Gold (PAXG ).
- In addition to banking products, BlockFi enables self-directed IRAs.
- While BlockFi promises higher returns than a traditional bank account, FDIC insurance doesn’t protect your money.
Even the best online savings accounts currently only offer an average of 0.05% APY, according to the Federal Deposit Insurance Corporation (FDIC). While your money is safe in a simple savings account, you are definitely not going to build wealth.
With that in mind, it’s wise to look out for opportunities to generate steady returns without sacrificing flexibility and liquidity.
I have owned cryptocurrencies since 2014, but only recently found cryptocurrency interest accounts that allow you to earn up to 8.6% of your crypto deposits. These accounts are the next evolution in Decentralized Finance (DeFi )’s battle against traditional centralized banking. But are they keeping their promise of higher returns?
BlockFi is an industry leading crypto exchange. With this company, users can deposit a stable cryptocurrency (pegged to the US dollar) into an account and earn up to 8.6%. This definitely sounds good, but we wanted to dig deeper to find out how these accounts work and who they might be for. If you want a higher return on your wealth, read on to find out more.
about the company
- BlockFi was founded in 2017 and aims to “combine the worlds of traditional finance and blockchain technology to provide financial support to customers on a global scale”.
- The company enables customers to buy, sell, and hold certain crypto assets such as bitcoin.
- If you hold an asset in your Blockfi Interest Account, you can earn interest paid to you in the same cryptocurrency.
- With BlockFi, customers can also take out loans against their cryptocurrency at lower terms than they could get with a personal loan.
- To ensure the security of your account, BlockFi offers security features such as two-factor authentication, approval list and internal PII verification.
- This company is currently best known for its dynamic and innovative savings product that allows you to deposit cryptocurrency and get a high return.
BlockFi products and services
BlockFi is developing alternative banking products for crypto investors and they even have new offerings in the works. Here are the top ways you can use BlockFi to help you meet your financial goals.
BlockFi interest account (BIA)
With this nontraditional “savings account” you can deposit cryptocurrency that you already own and earn up to 8.6% APY in the process. Note that your account balance will accrue interest on a daily basis, but will be paid monthly. This account is also free of hidden fees and minimum balance requirements.
If you already have cryptocurrency as part of your portfolio and are a long-term investor, you can also deposit it with BlockFi and earn interest on your account. Remember, how much you make depends on the type of cryptocurrency you own. For example, Bitcoin (Tier 1) is currently earning 6% at the time of writing, while Ethereum is earning 5.25% and PAX is earning 8.6%.
BlockFi trading account
BlockFi also provides a platform for buying, selling and trading cryptocurrency. You can carry out all of your crypto movements with the innovative mobile app and trading is instant. Currently, you can buy, sell or trade BTC, ETH, LTC and PAXG as well as USD-based stablecoins such as USDC, USDT, GUSD and PAX.
Because trades and purchases are instantaneous, you can start earning interest in your crypto right away. You can also use the app to set up recurring trades.
BlockFi Crypto-Backed Loans
When you deposit the cryptocurrency with BlockFi, you can use the funds in your account to get a low-interest loan. Currently, loan rates can be competitive up to 4.5%. Since you are using your crypto balance as collateral on your loan, you can qualify without a hard or soft pull on your balance. This makes it easy to qualify for crypto-backed loans regardless of your credit rating.
BlockFi crypto-backed loans are also advancing rapidly. Once you apply, your loan funds can be received within the same business day.
Coming soon: BlockFi Bitcoin Rewards credit card
BlockFi is also introducing a reward credit card that you can use to earn rewards in cryptocurrency (I’m on the waiting list!). You can currently join the waiting list for this product which will eventually offer 1.5% off Bitcoin for everything you buy.
Little additional details are currently available on the Bitcoin Rewards credit card, but we should learn more about them when that card is released later in 2021.
Note: You must be a BlockFi client with an account to join the waiting list.
Cryptocurrency Savings Accounts: What To Look For
If you are investing with cryptocurrency, or getting a higher return with it than with a savings account, you should know this first Some cryptocurrencies are incredibly volatile. We have watched the price of Bitcoin rise to $ 20,000, drop below $ 4,000, and soar to over $ 30,000 in recent years. This is a fun ride if you end up winning, but it’s safe to say that the cryptocurrency is not stable for the time being.
Apart from the general volatility of crypto accounts, the BlockFi Interest Account (BIA) does not offer the same protection as a traditional savings account that comes with FDIC insurance. BlockFi accounts are also delivered without SIPC insurance. This is a type of insurance that protects against loss of cash and securities.
With FDIC coverage on the best savings accounts, the standard coverage is $ 250,000 per depositor, per insured bank, and for each category of account holder. This insurance can replace your funds if your traditional bank goes out of business and lets you down.
With SIPC insurance, most investors are covered for $ 500,000, including a limit of $ 250,000 on cash. BlockFi claims its BIA funds are “insured” but it is not easy to find out how that insurance works or how reliable it is.
Who is BlockFi best for?
Current long-term Bitcoin holders
If you already have Bitcoin or Ethereum and it’s sitting on Coinbase or any other exchange, getting it to Blockfi to start earning interest seems like a breeze. Fees and liquidity can vary. So if you are actively trading these coins, this may not be the best move.
If you already have cryptocurrency, you can also open a BIA and earn interest on your deposits.
You want to use your crypto to take out a loan
Because BlockFi allows cryptocurrency investors to use their cryptocurrency to earn interest or serve as collateral on a loan, this company is best suited for seasoned cryptocurrency professionals who buy, sell, and trade cryptocurrency already as part of their portfolio, but get a loan against their account balance.
If you’re interested in crypto but don’t want to take too much risk, the BIA is a good place to start. You can make so much more than you can with a traditional savings account. While you are at higher risk than an FDIC insured bank, I see this as an acceptable risk to some (not all) of your cash.
Earn a little more as you learn more about the world of crypto investing, then decide to take the plunge later. Remember that your account balance is not protected by the same type of insurance as traditional bank accounts and brokerage accounts.
Jeff’s take on BlockFi
Check out Jeff’s Top Crypto Platform Considerations and What to Know Before Opening a BlockFi Account.
BlockFi compared to other industry competitors with crypto savings accounts
|Possible APR||Earn up to 8.6% APY||Earn up to 8% interest on crypto and up to 12% on stablecoins paid out daily.||Earn up to 10.3% interest on crypto|
|Minimum account balance required||$ 0||$ 0||$ 100|
|fees||No hidden fees||No hidden fees||No hidden fees|
What you should know about crypto savings accounts
We tried to bring the point home Crypto savings accounts are not the same as traditional bank accounts. There is significant risk when you start looking at cryptocurrency, and cryptocurrency savings accounts cannot offer the same federal protection as regular banks.
Since cryptocurrency hasn’t been around that long, if you use one of these accounts for a higher return, you are putting your wealth in question. That doesn’t necessarily mean that crypto savings accounts are a bad idea. However, you should know the risks and what it is about.
Here are some more details that you should know and understand before opening this type of account:
- Withdrawal restrictions. If traditional savings accounts allow you to withdraw funds up to six times per month with no fees, crypto savings accounts may have more restrictive withdrawal limits.
- Missing compound interest. Because of the way crypto savings accounts work, you don’t necessarily earn compound interest like you would with a traditional savings account.
- Property issues. For crypto savings accounts, you will likely be asked to provide the “keys” to your account as this will allow the administrator to borrow your crypto. Many investors are not happy with this scheme, and some would say so for good reason.
- Security risk. While cryptocurrency savings accounts typically offer a high level of security, you should know that cryptocurrency is a target for hackers and thieves. According to Coindesk, hackers and scammers have managed to steal $ 7.6 billion worth of cryptocurrency since 2011.
The bottom line
Earning up to 8.6% APY on your crypto assets sounds pretty good, but don’t forget to read the fine print. While these accounts offer high returns, they don’t have the same level of protection as a traditional savings account.
It is best to take the time to read all about cryptocurrency and crypto savings accounts, as well as the steps you can take to protect yourself.
A cryptocurrency savings account can help you beat the bank, but you need to take more risk along the way.
Frequently asked questions about BlockFi (FAQ)
Before getting started with any BlockFi product, make an effort to learn as much as you can about this company and all that it offers. These FAQs can help.