- BlockFi lets you use cryptocurrency to earn interest at up to 8.6% APY. You can also borrow cash and buy or sell various cryptocurrencies using the platform and mobile app.
- Cryptocurrencies currently eligible in BlockFi products and services include Bitcoin, Ethererum, Litecoin, Gemini Dollar (GUSD), Tether (USDt), Paxos Standard (PAX), USD Coin (USDC), and Pax Gold (PAXG).
- In addition to banking products, BlockFi allows self-directed IRAs.
- While BlockFi promises higher returns than a traditional bank account, your money won’t be protected by FDIC insurance.
Even the best online savings accounts currently offer an average of just 0.05% APY, according to the Federal Deposit Insurance Corporation (FDIC). Although your money might be safe in a basic savings account, you’re definitely not going to build wealth.
With that in mind, it’s smart to keep an eye out for ways to earn a steady return on savings without giving up flexibility and liquidity.
I’ve owned cryptocurrencies since 2014, but just recently found cryptocurrency interest accounts which claim to let you earn up to 8.6% on your crypto deposits. These accounts are the next evolution in Decentralized Finance’s (DeFi) fight with traditional centralized banking, but do they deliver on their promise of higher returns?
BlockFi is an industry leading crypto exchange. This company allows users to deposit stable cryptocurrency (pegged to the US dollar) in an account and earn up to 8.6%. That definitely sounds good, but we wanted to dig deeper to find out how these accounts work as well as who they might be the right fit for. If you’re eager to earn a higher rate of return on your assets, keep reading to learn more.
About the Company
- Founded in 2017, BlockFi seeks to “bridge the worlds of traditional finance and blockchain technology to bring financial empowerment to clients on a global scale.”
- The company allows customers to buy, sell and hold certain crypto assets, like Bitcoin.
- When you hold an asset in your Blockfi Interest Account, you can earn interest paid to you in the same cryptocurrency.
- BlockFi also lets customers borrow against their cryptocurrency at lower rates than they might get with a personal loan.
- To help you keep your account safe, BlockFi offers security features like two-factor authentication, allowlisting, and internal PII verification.
- This company is currently best known for their dynamic and innovative savings product, which lets you deposit cryptocurrency and receive a high rate of return.
BlockFi Products and Services
BlockFi builds alternative banking products for crypto investors, and they even have new offerings in the works. Here are the main ways you can use BlockFi to help you reach your financial goals.
BlockFi Interest Account (BIA)
This non-traditional “savings account” lets you deposit cryptocurrency you already hold and earn up to 8.6% APY in the process. Note that interest accrues daily on your account balance, yet it is paid out monthly. This account is also free of hidden fees and minimum balance requirements.
If you already have cryptocurrency as part of your portfolio and you’re a long-term investor, you might as well deposit it at BlockFi and earn interest on your account. Just keep in mind that how much you’ll earn depends on the type of cryptocurrency you hold. For example, as of writing, Bitcoin (Tier 1) currently earns 6%, whereas Ethereum earns 5.25% and PAX earns 8.6%.
BlockFi Trading Account
BlockFi also offers a platform for buying, selling, and trading cryptocurrency. You can conduct all your crypto moves using the innovative mobile app, and trades are instant. Currently, you can buy, sell, or trade BTC, ETH, LTC, and PAXG, as well as USD-based stablecoins like USDC, USDT, GUSD, and PAX.
Since trades and purchases are instant, you can begin earning interest on your crypto right away. You can also use the app to set up recurring trades.
BlockFi Crypto-Backed Loans
If you keep cryptocurrency on deposit with BlockFi, you can use the funds in your account to secure a low-interest loan. Currently, loan rates can be as competitive as 4.5%. Since you use your crypto balance as collateral for your loan, you can qualify without a hard pull or a soft pull on your credit. This makes crypto-backed loans easy to qualify for regardless of your credit score.
Crypto-backed loans from BlockFi also move along at a rapid pace. Once you apply, you can get your loan funds as soon as the same business day.
Coming Soon: BlockFi Bitcoin Rewards Credit Card
BlockFi is also launching a rewards credit card that lets you earn rewards in cryptocurrency (I’m on the waitlist!). You can currently join the waitlist for this product, which will eventually offer 1.5% back in Bitcoin on everything you buy.
There are scarce additional details available on the Bitcoin Rewards Credit Card for now, but we should find out more when this card is released later in 2021.
Note: You have to be a BlockFi client with an account to join the waitlist.
Cryptocurrency Savings Accounts: What to Watch Out For
When it comes to investing with cryptocurrency or using it to earn a higher return than a savings account, you should first know that some cryptocurrency is incredibly volatile. We’ve watched as the price of Bitcoin rose to $20,000, dropped below $4,000, then increased in value to over $30,000 over the last several years. That’s a fun ride to be on if you wind up winning in the end, but it’s safe to say that — for the time being — cryptocurrency isn’t stable.
Aside from the general volatility of crypto accounts, BlockFi Interest Account (BIA) doesn’t come with the same protections as a traditional savings account that comes with FDIC insurance. BlockFi accounts also come without SIPC insurance, which is a type of insurance that protects against the loss of cash and securities.
With FDIC insurance on the best savings accounts, the standard insurance amount is $250,000 per depositor, per insured bank, and for each account ownership category. This insurance can kick in to replace your funds if your traditional bank goes out of business and leaves you in the lurch.
With SIPC insurance, most investors are covered for $500,000, which includes a $250,000 limit for cash. BlockFi claims its BIA funds are “insured”, but it’s not easy to find how that insurance works or how reliable it is.
Who BlockFi is Best For
Current long-term bitcoin holders
If you already have bitcoin or ethereum and its sitting in Coinbase or other exchange, it seems to be a no-brainer to bring it over to Blockfi to earn interest. Fees and liquidity can vary, so if you are actively trading these coins, this might not be the best move.
If you have cryptocurrency already, then you might as well open a BIA and begin earning interest on your deposits.
You want to use your crypto to take out a loan
Because BlockFi lets crypto investors use their cryptocurrency to earn interest or as collateral for a loan, this company is best for seasoned cryptocurrency experts who already buy, sell, and trade cryptocurrency as part of their portfolio but need to take out a loan against their balance.
If you’re interested in crypto, but don’t want to take too much risk, the BIA is a great place to start. You can earn so much more than a traditional savings account. Although you do have more risk than an FDIC-insured bank, I view it as an acceptable risk with a portion (not all) of your cash.
Earn a little extra while you learn more about the world of crypto investing and then decide to make the leap later. Just keep in mind that your account funds are not protected by the same type of insurance as traditional bank accounts and brokerage accounts are.
Jeff’s Take on BlockFi
Watch Jeff’s key considerations about the crypto platform, and what to know before opening a BlockFi account.
BlockFi vs. Other Industry Competitors with Crypto Savings Accounts
|Potential 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 to Know About Crypto Savings Accounts
We’ve tried to drive the point home that crypto savings accounts are not the same as traditional bank accounts. There’s a considerable amount of risk when you’re dealing in cryptocurrency for starters, and cryptocurrency savings accounts can’t offer the same federal protections as regular banks.
Since cryptocurrency hasn’t been around as long, you’re putting your assets on the line if you use one of these accounts to secure a higher return. That doesn’t necessarily mean crypto savings accounts are a bad idea. However, you should know the risks and understand what’s at stake.
Here are some other details you should know and understand before you open this type of account:
- Withdrawal restrictions. Where traditional savings accounts let you withdraw funds up to six times per month without any fees, crypto savings accounts may have more restrictive withdrawal limits.
- Lack of compound interest. Because of the way crypto savings accounts work, you won’t necessarily earn compound interest like you would with a traditional savings account.
- Ownership issues. With crypto savings accounts, you will likely be asked to give up the “keys” to your account since this allows the administrator to lend your crypto out. Many investors are not comfortable with this arrangement, and some would say for good reason.
- Security risks. While crypto savings accounts tend to have 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 in 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. These accounts do offer big returns, but you won’t have the same protections as you would with a traditional savings account.
Your best bet is taking time to read all you can about cryptocurrency and crypto savings accounts, as well as the steps you can take to protect yourself.
A cryptocurrency savings account may help you “beat the bank,” but you’ll have to accept more risk along the way.
BlockFi Frequently Asked Questions (FAQ)
Before you get started with a BlockFi product, you should strive to learn as much as you can about this company and all they offer. These FAQs can help.
BlockFi is actually a centralized service, which means it has different risks than decentralized finance (DeFi) platforms.
Yes. BlockFi lets you buy, sell, and trade various cryptocurrencies including Bitcoin.
BlockFi has actually been hacked before in May of 2020. Fortunately, no funds were lost in the process.
Cryptocurrency exchanges aren’t FDIC-insured, and this includes BlockFi’s crypto savings accounts. However, BlockFi says it purchases private insurance to cover depositor funds.