How to Earn Interest on Crypto – Beginners Guide 2023

There are various ways to earn interest on crypto, ensuring that tokens do not sit idle in private wallets or exchanges. Examples include crypto savings accounts, staking, and yield farming.

In this guide, we explore the different ways to earn interest on crypto and which platforms to consider for this purpose.

Where to Earn Interest on Crypto

In this section, we discuss where to earn interest on crypto. We review five top-rated places, each offering a different way to earn interest on Bitcoin and other digital tokens.

1. eToro – Overall Best Place to Earn Interest on Crypto (Tier-1 Regulation)

eToro is the best place to earn interest on crypto 2023. First and foremost, eToro offers a staking facility, and there is no requirement for investors to opt-in. Instead, interest will be earned simply for buying and holding crypto on the eToro platform. This includes support for three of the best staking coins – Cardano, Ethereum, and Tron. As noted above, the staking rewards will automatically be paid after 7-10 days of holding the coin.

eToro takes care of the staking procedures behind the scenes. This makes eToro a great option for investors that want to earn interest on crypto passively. Investors will earn between 75% and 90% of the staking rewards generated by eToro. This will depend on the investor’s account tier, running from bronze to platinum. Most importantly, there is no lock-up period on eToro. This enables investors to withdraw their coins from the staking pool at any given time.

There are no minimum holding periods nor any penalties for making a withdrawal. To start earning interest, the first step is TO open an account with eToro and make a deposit of at least $10. eToro supports debit/credit cards, e-wallets, and bank transfers. USD payments are fee-free while other currencies attract a small charge of 0.5%. Nonetheless, after making a deposit, the user can then proceed to buy Cardano, Ethereum, and/or Tron. After the initial grace period, the staking rewards will be updated in the user’s account every 24 hours.

This is great for keeping tabs on how much interest is being earned. In addition to staking coins, eToro also supports some of the best emerging cryptos. This includes the likes of Uniswap, SushiSwap, Cosmos, and Decentraland. Some of the best meme coins are also supported, such as Dogecoin and Shiba Inu. And of course, eToro also supports Bitcoin. When it comes to safety, this is eToro’s standout feature. It holds licenses with several regulatory bodies, including FINRA, FCA, ASIC, and CySEC.

The eToro mobile wallet app is licensed by the GFSC. This makes eToro one of the best crypto apps for earning interest on the move. The eToro app also comes with other top features, such as exchange services, token swaps, copy trading, smart portfolios, and much more. Another benefit of choosing eToro for earning interest on crypto is that it offers unparalleled customer service. Registered users can simply hit the ‘Live Chat’ button to speak with an agent in real-time.

On the flip side, eToro is limited in the number of cryptos it supports for staking interest. But more coins will be added in the near future. Moreover, eToro might not be suitable for those targeting huge yields. Instead, eToro takes a safe and risk-averse approach to earning interest on crypto. Ultimately, this is a more sustainable strategy in the long run.

How Does Earning Interest on Crypto Work?

In this section, let's explore the most popular ways to earn interest on crypto. This will enable investors to choose the most suitable method for their goals and risk tolerance.

Savings Accounts

Crypto savings accounts work much like certificates of deposits (CDs). In a nutshell, the investor will deposit tokens into a crypto interest account and earn a yield. Savings accounts are usually offered by crypto exchanges, including Crypto.com, OKX, and Binance.

There are various terms associated with crypto savings accounts and this will impact the interest offered. For example, higher rates are usually offered on longer lock-up terms. While lower rates are offered on flexible accounts.

• When opting for a lock-up term (e.g. three months), the crypto tokens cannot be withdrawn until the respective maturity date.  This is why interest rates are higher.
• When opting for a flexible term, the crypto tokens can be withdrawn at any time. This is why lower interest rates are offered.

When depositing crypto tokens into a savings account, the platform will often use the funds for third-party loans. This enables the platform to pay interest to the investor. But do remember that people can default on loans, which means savings accounts are not free of risk.

Staking

One of the best ways to earn interest on crypto is via staking. The traditional method of staking consists of crypto tokens being deposited into a blockchain network. The network must use the proof-of-stake consensus mechanism. Examples include Ethereum and Cardano.

When the tokens are locked in the blockchain, they help keep the network safe. In turn, the blockchain will reward stakers for as long as the tokens are locked. This makes staking a less risky option than savings accounts.  However, this also means that interest rates are generally lower.

The best place to earn interest on crypto via staking is eToro. This is a heavily regulated platform with several tier-one licenses. eToro does not require investors to opt-in to its staking program, as rewards are automatically generated after 7-10 days.

Cryptoassets are a highly volatile unregulated investment product.

Yield Farming

Another option to consider when learning how to earn interest on Bitcoin is yield farming. This method will see investors lend tokens to a crypto exchange for liquidity purposes. Unlike savings accounts and staking, yield farming requires investors to lend two different tokens.

This is because yield farming provides liquidity for a tradable pair. Moreover, an equal amount of each token must be provided, in terms of the current market value.

Now, yield farming comes with both pros and cons. On the one hand, yield farming can generate significant returns. However, it is also fraught with risk. In particular, when the value of the two tokens diverts from one another, this can result in impermanent loss.

In simple terms, this means that the investor would have made more had they opted to leave the tokens in a private wallet. Hence, an opportunity cost has arisen.

Is Crypto Interest Worth it?

Crucially, this concept is not exclusive to cryptocurrencies. On the contrary, leaving money in a bank account also comes at a cost. After all, the money could be invested elsewhere to maximize long-term growth.

Maximizing Growth

To illustrate the benefits of earning interest on crypto, let's look at an example.

• First, let's say that an investor buys one Bitcoin when it was worth $10,000
• Three years later, Bitcoin is worth $30,000
• This means the investor has made capital gains of $20,000
• Now let's say that the investor deposited their one Bitcoin into a savings account from day one. The savings account paid an average annualized yield of 5%
• We'll say that over the course of three years, Bitcoin averaged a market value of $20,000
• This means in addition to $20,000 in capital gains, the investor made an additional $1,000 each year, or $3,000 in total.

As per the above, the investor made an additional 15% on their investment. In contrast, had the investor kept their one Bitcoin in a private wallet, they would have missed out on these additional gains. Hence, this is an opportunity cost.

Compounding Growth

Another benefit of earning interest on crypto is that it facilitates compound growth.

The benefits of compound growth should not be understated, as we highlight in the example below:

• Let's say a $10,000 investment is made in Ethereum
• The investor deposits the Ethereum tokens into a staking pool that pays 10% annually
• At the end of year one, the investor receives $1,000 in staking rewards. The investor reinvests the $1,000 back into the same staking pool.
• At the end of year two, the investor makes $1,100 in staking rewards. This is because they now have $11,000 deposited.
• This will continue each and every year, with the interest earned increasing after each reinvestment.

Now check out the chart below which further supports the above example.

By reinvesting the 10% rewards each year, the original $10,000 is worth almost $26,000 after a decade. Moreover, this doesn't take into account the value of the respective crypto token. Any price appreciation is in addition to the interest earned.

In contrast, by withdrawing the interest each year, the investment remains at $10,000. This is why electing to earn interest on crypto remains a smart investment strategy.

Consider the Risks 

Like all investment products, earning interest on crypto isn't without its risks. After all, the interest has to come from somewhere.

For example, we mentioned earlier that crypto savings accounts allow exchanges to offer loans to third parties. In other words, the exchange uses deposited crypto tokens and lends them to other people who pay interest. If a large number of defaults occur, the investor is at risk of losing some or even all of their cryptos.

In the case of yield farming, the overarching risk is impermanent loss. This happens when the value of the two tokens being deposited changes exponentially, resulting in an imbalance of liquidity. In turn, the investor can get back less than they originally invested.

Another risk to consider is that interest-earning products come with lock-up terms. During this period, the tokens cannot be withdrawn. This can be problematic if the token goes through a significant price increase which is short-lived. As the tokens were locked, the investor would have missed out on sizable gains.

How Much Interest Can You Earn on Cryptocurrency?

The amount of interest that can be earned on crypto will depend on many different factors. For example,  the best crypto interest rates are usually offered on small and emerging tokens. This is because the tokens are riskier than established cryptos, so platforms will pay higher rates.

At the other end of the scale, large-cap tokens with a trusted reputation will come with the lowest rates. For example, the best Bitcoin interest rate on Crypto.com is just 1.5%. And, to get this rate, the investor must:

• Agree to a three-month lock-up term
• Stake at least $40,000 worth of CRO tokens

Let's say the investor instead wants a flexible savings account on Bitcoin without staking CRO. This will reduce the interest rate to just 0.1%. Crucially, the amount of interest available is determined by the amount of risk undertaken. The more risk that investors are willing to take - the higher the interest rates.

Ultimately, investors will need to shop around to find the ideal crypto-interest product. An informed decision will need to be made based on the investor's financial objectives and tolerance for risk.

Crypto Interest vs Staking

The terms 'crypto interest' and 'staking' are often used interchangeably. However, they can refer to different outcomes.

For example, there are many different ways to earn crypto interest - and this includes staking alongside savings accounts and yield farming.

In some circles, crypto interest is exclusively associated with savings accounts. This is because the deposited tokens are lent to others via an exchange. And in turn, the investor is paid interest on the borrowed funds. However, just like staking, savings accounts generate interest in crypto tokens.

The key difference is in how the interest is generated. For instance, staking generates rewards via a proof-of-stake blockchain. This means that the rewards are derived from the blockchain itself, rather than a third party.

Another thing to remember is that both the best crypto interest accounts and staking can come with flexible or fixed terms. In the case of the latter, the tokens cannot be withdrawn until the term has passed.

Crypto Interest Fees

Whether or not crypto interest products attract fees will depend on the chosen platform.

This is also the case with staking. For example, eToro enables investors to keep up to 90% of the staking rewards it generated behind the scenes. This means that eToro will take 10%. While this might seem high, eToro enables investors to withdraw their tokens at any time. This is the case even if the tokens are locked in a staking pool. Moreover, eToro offers 24/7 customer support and a heavily-regulated framework - so its fees are reasonable when factoring in the full package.

Those looking to earn interest on crypto via yield farming will also need to consider fees. For example, the exchange will usually offer a 'share' of trading fees it collects on the pair the investor has provided liquidity for. However, this might only amount to a small percentage of the collected fees. Rarely will exchanges publish a full breakdown of their profit-sharing agreement on yield farming.

Do You Pay Tax on Crypto Interest?

The specific tax implications of crypto interest are complex. Oftentimes, tax authorities require investors to declare crypto interest amounts based on the value when received. Consider that some crypto interest platforms make daily or weekly payments.

This means that every time interest is received, the investor needs to log the value of the token within 24 hours. This figure will then be added to the investor's income for the year. This means that the interest can increase the investor's tax band.

Moreover, the tax will need to be paid even if the original investment is currently at a loss. This is because capital gains and losses are not realized until the crypto tokens are sold.

For further insight, check out our comprehensive guide on how to avoid crypto taxes.

How to Earn Interest on Bitcoin Tutorial?

To conclude this guide, we will explain how to earn interest on crypto in just four simple steps. This tutorial explains the process when using eToro - a regulated platform that supports passive income via staking.

Step 1: Open an eToro Account

First, an account with eToro will need to be opened. This is because of eToro's strong commitment to regulation, investor safety, and anti-money laundering controls.

Visit the eToro website and complete the registration form. Simply provide some personal information and contact details to proceed with the KYC process. Next, upload a copy of a government-issued ID and proof of address. The documents will be verified near-instantly.

Step 2: Make a Deposit

eToro allows investors to earn interest on crypto across three staking coins:

• Ethereum
• Cardano
• Tron

To earn interest, investors will need to purchase one of the above coins. But first, a deposit will need to be made.

eToro requires a minimum deposit of just $10. Payment types accepted include debit/credit cards, e-wallets, and bank wires.

Step 3: Buy an Eligible Staking Coin

Now that the account has been funded, it's time to buy an eligible staking coin. Most investors use the search box by typing in the name of the crypto.

For example, in the image above, we are searching for 'Cardano'. Then we press the 'Trade' button to proceed. This will then load an order box, like in the image below.

Type in the total amount of crypto to buy. In our example, we are buying $500 worth of Cardano.

Click 'Open Trade' to confirm the purchase.

Step 4: Earn Staking Rewards 

After the purchase has been made, there is nothing else to do. eToro has a grace period of between 7-10 days, which is when the investment will start earning interest.

After this period, investors can track how much interest they are earning every 24 hours. Interest will be earned for as long as the crypto tokens remain in the eToro account. Investors can withdraw their tokens at any time without penalties.

Conclusion

Earning interest on crypto is a great way to maximize returns. Not only will investors generate passive income but they will still benefit if the crypto increases in value.

To start earning crypto interest today, check out eToro. This regulated platform offers an in-built staking facility that supports Ethereum, Cardano, and Tron.

After 7-10 days of buying the respective token, interest will be generated on a daily basis. Best of all, eToro enables clients to withdraw their tokens at any time - without lock-up periods or fees.

Cryptoassets are a highly volatile unregulated investment product.

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