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Crypto staking – how to earn market-beating returns

Crypto staking and earning interest on your cryptocurrency can provide returns unrivalled by a traditional savings account – particularly if you are into crypto for the long haul.

There are two pretty basic reasons why:

Firstly, with crypto staking, rewards and interest rates are typically much higher. Secondly, the (so far) appreciating nature of crypto in the long term can turbo-charge your earnings.

But it’s an unregulated market that presents risk as well as reward, so a heavy dose of due diligence is needed here. As someone who’s recently started with crypto staking, I did a LOT of research first.  And this is what I learned…

Heads up – We aim to produce honest and accurate content, however, we are not financial advisors. If you need financial advice, Unbiased can connect you with a suitable professional for free. Some of our links may earn us a small commission to help us run the site.

How does Crypto Staking work?

As well as staking, it turns out there are a number of ways to earn money from your cryptocurrency investments.

They can feel kind of similar but really they’ve got fundamentally different underlying mechanisms, so let’s have a look at them.

1. Earn interest

Imagine a traditional savings account, only with cryptocurrency, not pound sterling.

Just like the banks will offer you, there’s a range of interest rates depending on the cryptocurrency you use, and it’s just the same with the terms too.

With crypto, you get the same options around how long you lock your money away for. For example, you can get flexible accounts where you can access your money at any time, and these offer lower rates than accounts with fixed terms, like 12 months.

Typically, you get paid interest back into your account in the same cryptocurrency, in exactly the same way you would with your standard pound sterling bank.

2. Crypto staking

This might sound a lot like the section you’ve just read, but crypto interest and crypto staking are subtly different.

Crypto interest is based on earning more crypto in return for lending out your cryptocurrency – makes sense as it’s exactly the same thing that happens when you stick your pound sterling in a high street bank account.

On the other side of the coin (sorry), crypto staking is based on you lending your cryptocurrency to be put to work in validating transactions on the blockchain. In return, you get rewarded with a payout relative to the amount of crypto you staked.

But not all cryptocurrencies allow you to do crypto staking, because in the world of crypto, there are broadly TWO types of cryptocurrency:

Firstly, there’s Proof of Work (PoW), which is what people are referring to when they talk about ‘mining’, and it’s used by cryptocurrencies such as Bitcoin.

Then, there’s Proof of Stake (PoS), used by cryptocurrencies such as Ethereum.

Crypto staking is only available for PoS-type cryptocurrencies.

3. Stablecoins

With staking, rewards are paid in cryptocurrency, the value of which can be unstable and change rapidly.

Thing is, stablecoins are a form of cryptocurrency whose value is tied to an outside asset. This could be the US dollar or even gold, which are generally much more stable.

Examples of ‘dollar-pegged’ stablecoins are Dai (DAI) and USD Coin (USDC).

Often, simply holding your cryptocurrency in a stablecoin like Dai can earn you rewards. For example, Coinbase offers up to 2% for doing just that.

You can then go further by lending out your stablecoin, potentially with even higher rewards, but still with typically less risk than full-fat cryptocurrencies.

4. Lending via DeFi apps

DeFi (or Decentralised Finance) apps enable peer-to-peer lending of cryptocurrency and offer the potential for greater returns. But they come with much greater risk too.

Examples of DeFi protocols include Compound and Aave.

Essentially, interest is charged to the borrower, which in turn earns you rewards.

For this type of lending, you do need a crypto hardware wallet, like a Coinbase Wallet.

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Four crypto staking benefits

Compared to traditional fiat money savings accounts, there are some fundamental differences when you’re earning interest through crypto staking.

1. Cryptocurrency, not sterling

Firstly, and perhaps obviously, you’re using cryptocurrency, not ‘normal’ money like the pound (aka fiat money). So you’ll need to set up an account on a specific crypto platform, which we’ll look at later.

Importantly, the interest you earn is typically paid back in that same cryptocurrency.

2. Higher interest rates

Next, the rates.

Currently, best-buy traditional savings accounts return between 0.75% and 2.25%, depending on how long you fix the term for, which could be up to five years,

With crypto, interest rates between 4% and 12% are common.

And you might expect long terms to secure those rates but the good news is that they actually tend to be short. It’s unusual to see terms in excess of one year!

3. Interest paid more frequently

With traditional savings accounts, the interest earned is usually paid monthly. But with crypto, it’s often weekly.

That means your returns start earning interest quicker, which improves the compounding effect.

Imagine starting a snowball. If it rolled slowly down a slope, occasionally picking up more snow, it would gradually get larger. But give it a shove and speed it up so it’s collecting snow more regularly, that thing will grow bigger more quickly.

(Note; not all platforms pay interest back into the crypto-interest account, so watch for this.)

4. Variable interest rate

Crypto interest is usually based on a ‘floating’ interest rate, relative to the supply and demand for crypto loans at that time. (That’s why the rate of crypto interest changes.)

Typically though, the ‘larger’ the coin, the more stable it is. For example, Bitcoin, the largest cryptocurrency, returns between 4% and 8%.

The crypto staking triple whammy

There are three major factors at play which explain why crypto staking can yield better returns.

1. Higher interest rates

As you already know, crypto interest accounts usually offer higher rates than your average pound sterling bank.

Currently, best-buy traditional savings accounts are between 0.75% and 2.25%, depending on how long you fix your term, whereas crypto interest is often between 4% and 12%.

For example, Marcus bank is currently offering 0.5% for their One Year Fixed Term Saver account. So, if you had £1,000 saved, you’d be earning £5 a year in interest, Yes, five.

On the other hand, Crypto.com are offering 6% on their native CRO coin for just three months fixed term. Now, your £1,000 is earning £60 a year. That’s 12 times more!

2. Crypto is an appreciating asset (sometimes)

Secondly, in the long term so far, many cryptocurrencies have been an appreciating asset.

For example, between January and April 2021, Bitcoin rose in value by almost 65%.

And that means the interest you earn on your crypto investment also increases accordingly.

Let’s look at an example…

Your original £1,000 investment in January 2021 may have forecasted £60 in interest at 6% by the end of the year. But thanks to the appreciation of Bitcoin, by April, your original investment is already worth £1,650. Now, your 6% interest is forecast to be £99, and that’s without putting any more money in.

Remember though, cryptocurrency is volatile. It has major ups and massive downs. For example, by the following summer of 2021, Bitcoin was down again by 50%. Ouch.

3. Compounding

With traditional fiat money savings accounts, the interest is paid monthly.

For example, a savings account with a £1,000 deposit paying 1% interest would return under £1 per month. At the end of each month, this £1 would be added to your account. Meaning, the next month you’ll earn interest on £1,001. This is sloooow!

But with cryptocurrency interest, rewards are often paid weekly, such as with Celsius. So, even if the crypto value remains unchanged at £1,000, not only are you earning £60 through a nifty 6% interest rate, but it’s paid back to you within a week. So each week you’re adding to your original stake. And since your money is deployed quicker, it can earn even more interest.

That snowball is now rolling down the hill faster, collecting more snow and getting bigger all the time.

(Note; this does vary between cryptocurrencies and platforms, so do check carefully before making any moves. Also, payments are not always compounded, depending on the platform.)

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Five popular crypto staking platforms

1. Coinbase

  • Popular crypto platform
  • Staking is available for Tezos, Cosmos and ETH and up to 5% interest
  • ETH2 staking coming soon
  • Stablecoin rewards on DAI and USDC up to 2%
  • Learn more

Earn £7 free when trading £70 on Coinbase

2. BlockFi

  • Industry leader with 1 million clients
  • Requires BIA (BlockFi Interest Account) – not available in US
  • Mechanism: interest
  • Interest calculated daily
  • Paid monthly
  • No minimum balance
  • No fees
  • Sample Bitcoin interest rate: 4.5%
  • Also provides crypto-loans
  • Learn more

$10 free Bitcoin when you buy $100 Bitcoin on BlockFi

3.Crypto.com

  • Well-know, large crypto-trading platform
  • Over 250 cryptocurrencies and stable coins (including Bitcoin and Ethereum)
  • Mechanism: staking
  • Terms options; flexible, one month, three months
  • Interest calculated daily
  • Rewards paid weekly
    Note; paid to your account and not compounded
  • Handy calculator
  • Sample Bitcoin interest rate (three-month term): 4.5%-8.5%
    Note; higher rate requires top-tier deposit amount in CRO and private members account for extra 2%
  • Rewards do not compound
  • Minimum deposits apply
  • See here for more details

Read our review on Crypto.com and earn $25 in free crypto

4. Binance

  • Wide range of coins
  • Competitive rates
  • Term options; flexible, one week to three months (depending on cryptocurrency)
  • Sample Bitcoin interest rate (three months): 7%
  • Some cryptocurrencies can be ‘sold-out’ and not available
  • Interest calculated daily (flexible)
  • Paid out daily (flexible)
  • Learn more here

5. Celsius

  • Mission-led crypto-platform looking to disrupt traditional banking
  • One million customers
  • Wide range of cryptocurrencies and stablecoins
  • Sample Bitcoin interest rate: 5%-6.55% on first Bitcoin, 1.5%-5% on all other Bitcoin
  • Paid platinum account option offers higher interest rates
  • Learn more here

$40 free Bitcoin when you transfer $400 Bitcoin on Celsius

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Crypto staking - what we like

  • Popular with crypto investors holding for the long-term.
  • Typically higher returns than traditional fiat money savings accounts.
  • Returns are linked to the interest rate and value of that cryptocurrency. It’s volatile though, so that can also be a downside.
  • No minimum deposit (subject to platform of course).
  • Often no minimum term, no minimum deposits and no transfer/redemption fees.
  • Earnings are often paid weekly.

Crypto staking - what we don't like

  • If the cryptocurrency depreciates, so does your asset and interest. This is a highly volatile market still, so we would only ever invest what we can afford to lose.
  • Unregulated market – minimal regulation means a far higher risk of scams.
  • Floating interest rates are not stable. 

Crypto staking summary

Crypto staking and earning interest through cryptocurrency typically offers much greater returns than traditional fiat money savings accounts. In today’s world, with meagre interest rates, that’s highly appealing.

But – and it’s a big but – it carries a high degree of risk too. Volatile. Unregulated. Unpredictable. All factors that jeopardise your hard-earned money.

Most crucially though; this is not a get rich quick scheme.

Before you consider crypto staking, or even investing in crypto at all, make sure your house is in order first. Clear debt, build an emergency fund and have a solid budget.

Then, maybe invest in crypto… And hold on for dear life.

If you still have questions, please come join our supportive UK Personal Finance club on Facebook, where you’ll find other like-minded individuals. It’s a safe, private community where you can ask questions and learn more about making the most of your money. Best of all, it’s free! I’d love to see you there.

Here’s to your Financial Fitness

EatSleepMoney.co.uk does not offer financial advice and is intended for reference/information only. Remember, you should always carry out your own research and/or take specific professional advice before choosing any financial products or services or undertaking any business or financial venture. If you need financial advice Unbiased can connect you with a suitable professional for free. Investments may go up as well as down and you may get back less than you put in.

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