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