Earning interest on your cryptocurrency is a new and exciting way to increase your investment gains. However, as the saying goes, ‘It’s not about what you make, it’s what you keep.’
Other Bitcoin/Crypto IRA companies are offering a way to “earn” interest on crypto held in an IRA. The headline is “Earn up to 6%” but after reading the fine print, the 6% is on USD (cash) held in the account only. What is the point of holding cash long term in a crypto IRA?
The interest on Bitcoin and Ethereum range from 2 – 3% annually. Not great, but better than nothing, right? Wrong!
Beware of the Fees
Any interest “earned” must be weighed against the cost to set up and maintain the account. If you have to pay 7.5% – 12.5% of your total account balance to get started, plus expensive monthly and yearly charges on top of future trading fees – the interest is far from enticing.
Let’s look at an example
If a 2% annual rate is offered, but you have to pay 12% upfront, it will take you 6 years to break even on the upfront cost. Not to mention all the other ongoing fees that may apply. And don’t even think about trading inside of your IRA. Even though an IRA is the perfect vehicle to make trades due to its tax-free shelter, if it costs you an arm and a leg to trade, you are better off just holding.
Compared with iTrust
It would be a more profitable decision to setup an account that only has a 1% purchase fee and low monthly fees but gives no interest. Now imagine what happens when we release our next generation interest product? You get both low fees and secure interest!
Beware of the Risks
In order to earn interest on your crypto, you need to take huge risks. Be sure you understand these risks. Read our article Earning Interest on Crypto: The introduction of Fractional Reserve Custodians to learn more.
Beware of Low Rates
Ensure that if you are taking the risks to lend out your crypto, you are earning the true industry rates. Do not accept anything less.
You can always check industry rates by looking at BlockFi, Celsius and Nexo. Standard industry rates are around 5-6% for Crypto (Bitcoin, Ethereum, Litecoin…etc) and 8-9% for Dollars (including stablecoins). If they are offering below industry rates, beware, they are likely leaving you with all the risk and keeping the majority of the profits for themselves.