Places to park your slow-money

Foreword: I’m still at least >60% invested in the stock market, and the expected returns there are way higher than the places below but if you’re looking for good places to park your slow/passive money, here is a guide. For active-money/faster methods, I highly recommend ARKK (and any of their other funds).

Time is Money. nattanan23/Pixabay

Hi friends, since I often talk about various investment topics with all of you and I tend to find myself repeating everything to everyone, I decided to just write it up in a blog post so its easy for you to read and follow :) I don’t intend to share this widely.

The tl;dr version is that you can passively earn ~$50/week for every $25k you keep deposited in these savings accounts (12% APY), or I’ve listed a couple of non-crypto alternative methods at the bottom (regular loans for ~11.50–13% APY). Also, if you’re familiar with this stuff already, skip to the “Recommended Routes” section.

High-Yield Crypto Savings Accounts

If you’ve been hearing about the DeFi movement in crypto this year (and why its so crazy high), the tl;dr of it is that we basically now have crypto banking: Loans, Credit cards and Savings accounts in crypto. The regulations for this stuff are still very much in the works, Europe is a lot more progressive than US here, but there is some optimism.

What we care about of the above set of banking is the Savings part- the rate typically ranges from 8–15% APY, with 12% being a good anchor point. A lot of you will see the crypto part in the title and assume I mean investing in actual crypto, but in this case, you’re actually earning on USD (or rather, stablecoins).

What are stablecoins? They are tokens that are pegged 1:1 to the US Dollar, which means they don’t change. You can exchange them for real fiat dollars at the exchanges that support them (eg. for Coinbase, its USDC, for Gemini, its GUSD) without any fee. The major ones are all audited frequently with dollars held in reserve at real banks (see below).

Risks? Since these are stablecoins and you’re not actually trading/buying/selling anything at a fluctuating price, the value of them will not “drop”. Your risk is two-fold, either the exchanges that support them entirely collapse (ie. Coinbase shuts down / goes bankrupt- unlikely, given they’re about to IPO), or the place you kept your savings account at collapses (either mismanaged by leadership, or a bank-run happens). So your risk is more like all-or-nothing. Given that stablecoins are very close to real dollars though, there is new regulation coming likely within the next month.

My recommendation to mitigate this risk is to diversify across multiple savings accounts and multiple coins, so that in the unlikely account that something goes wrong with one of them, not all of them at risk.

Where can I invest?

All these interest rates are current as of 20/Dec/2020. See the descriptions below where I go through them in a little more detail

  • Celsius (10.51% APY) + $25 referral on $200 deposit. Pays interest weekly.
  • YouHodler (12% APY) (no promotions). Pays interest weekly, calculates every 4hrs.
  • Nexo (8%* APY) + 3x earn rate promotion for rest of December. Pays interest daily.
  • BlockFi (8.6% APY) + $50 referral on $350 deposit. Pays interest monthly.
  • Fulcrum (13–15% APY) (no promo, fully decentralized service). Pays interest every second.
  • CoinLoan (10.3% APY)

There are other places like Crypto.com (6%*), Linus (4.50%), Outlet (6%) but I have either not used them because their rate is not competitive or because staking is yuck. *Nexo above also gives a higher rate of 9–10% if you stake, but I don’t recommend staking. Whats Staking? Its where you also buy their custom crypto coin (like CRO, NEXO and CEL) and they give you higher interest for in exchange for the loyalty- but generally speaking you have to buy a sizeable chunk to earn that, and that money is not a stablecoin (its a regular crypto coin which has its own risks — not worth it). Some places also give higher rates if you ‘lock’ it for 1–3 months, but again, I prefer keeping my money fully liquid.

How do I actually do this?

For the short version, see “Recommended routes” below.

  1. First you transfer your regular fiat money to an exchange (see Stablecoins below). You can do ACH which is free but typically has a 7-day hold at most exchanges, or you can do a Wire which usually gets processed within 1 hour (but has fees at some places). If you’re looking for a new bank, Fidelity’s free Cash Management account and HSBC Premier both give free wires :) — ping me if you want to find out more about those two.
  2. At the exchange you convert the money to the stablecoin (free, instant, no actual trade takes place- and some places it is implicit)
  3. You “withdraw” to your deposit address at the savings deposit place you signed up for (see list above/below) — since this transaction is digital via crypto, it only takes 4 - 10min via Ethereum blockchain (part of the power of crypto). This typically has a 50c-$3 transaction fee depending on how busy the network is, however some places (such as Celsius and Gemini eat the fee for you to make it free).
  4. You earn interest at the frequency mentioned above.

You do these steps in reverse to take the money back out, your money is fully-liquid always (at the places I’ve mentioned). If you are using a wire with the exchanges you can withdraw within 1hr.

Stable-coin / Exchange options

To convert your dollars into a digital dollars, you’ll need to pick a coin- if you are moving a large amount in, I recommend splitting amongst them / diversifying. I am writing them here as coin, exchange pairs since they often go together in terms of considering fees.

  • Gemini Dollar (with Gemini exchange) — This is Gemini exchange’s dollar, if you click the link you can find details of their audits- the physical dollars are held in reserve in New York. Gemini exchange has been around for years and is one of the largest exchanges in the US (Coinbase is the biggest however), it was founded by the Winklevoss brothers. The good thing about it is there are no fees at Gemini (free wires!) for both fiat deposit and withdrawal, and they even absorb the mining transaction fee making it free for crypto transactions too. The risk here though is Gemini is the smallest of the 3 currencies I am recommending here (#14 in market cap here), as such its only supported by Celsius and BlockFi in the list above.
  • USDC (with Coinbase exchange)— This was established by Circle and Coinbase, and is currently the second largest stablecoin on the market (its massive), and also the most widely supported (useable on ALL the exchanges I mentioned above). However, its the most expensive fees-wise because coinbase charges $10 for wire deposits, $25 for wire withdrawals (ACH on the other hand in both directions is free, but you’ll have to wait 7 days for deposits and 3 days for withdrawals.. and given the whole point is earning passive interest, time is literally money). Also Coinbase passes on the network fee for you when you transfer to your savings place, which fluctuates based on how busy the ethereum blockchain is (I’ve had anywhere from 57c to $2 for these things). It is however the most versatile stablecoin since it is available widely, and you can even convert it to BUSD for free at Binance (at which point you can then convert to PAX).
  • PAX (via Paxos.com directly) — Paxos isn’t really a regular bitcoin exchange, its job (like Circle above) is partly to maintain its’ stablecoin PAX but also provide crypto services for many intuitions (ie. Paypal’s recently launched support for buying/selling crypto is powered by Paxos, same with Revolut). Its audited and stable and widely supported by all the above saving places except for Fulcrum. Paxos also maintains BUSD (Binance dollar) for Binance, so you can swap BUSD to PAX anytime 1:1, so if you combine the two market caps, it is the 3rd largest stablecoin. Wire deposits are free, withdrawals cost $20.

Note: If you clicked the market cap link above, you’ll note that USDT is the biggest stablecoin- its because its the oldest (been around for many years), but it is NOT audited at 1:1 to the US Dollar and I do not recommend it so not listing it here.

Savings Companies options

  • Celsius (10.51%) This place is huge and currently has over $3B under management as of November, the interest rate is slightly lower than what it was over the summer of this year (12%) but higher than the ~8% of last year. I recommended it since they don’t charge fees for anything, however since they are so big, they do not have any external insurance (their safety is in their size, and have maintained a pretty good reputation in the community so far).
  • YouHodler (12%) This one is only eligible for non-US citizens, but is a nice niche place based out of Switzerland. Much smaller than others on the list, but they have a really good reputation. They are also insured for 150M by LedgerVault- its unclear how much of that 150M is in use though as they don’t seem to publish AUM. The reason it does not allow US citizens is that unlike the other places that support US customers by restricting the loans-section of their websites (US crypto regulations currently don’t allow loans), they do not have per-country restrictions in place. That said, if you are able to, this is my favourite out of them all (and I even got my mum to keep some of her money here haha).
  • Nexo (8–10%) This one is also pretty large, similar to Celsius, but has insurance upto 100M by Bitgo. Base rate of earn is only 8%, but if you stake NEXO tokens (buying some of their ‘special’ currency) you can do 9 or 10% — in general I don’t like staking so I will only consider this at 8%. That said, they currently have a promotion til the end of December at 3x.
  • Fulcrum (11–15%) This one is totally different to the other options on here because its fully decentralized. You’ll need your own wallet to use this site, I personally use MetaMask for this, but essentially, it lends out to other people at 19%, and you earn at whatever the rate is in the pool at the time- typically I’ve seen this sit around 13%. ie. If more people have added liquidity here to earn from than have borrowers been borrowing from, the rate is lower (and vice versa). You also have full transparency over the crypto because it calculates your earning every second and shows the total liquidity in the pool. As a rule of thumb, to stay safe, I only keep in here a max of 1% of whatever the USDC liquidity pool is. Since this whole thing is completely p2p and decentralized, there is no KYC or anything in place (its just all handled by the blockchain). In a sense, this is the most raw form of all the crypto savings / lending products above (everything else is just doing this at scale and hidden by a company).
  • BlockFi (8.6%) This is partially owned by the Winklevoss brothers, so you can see this as an extension of Gemini and GUSD- pretty safe but their rate is only 8.6%.
  • CoinLoan(10.3%) This is the only one on the list which I have never actually tried myself, so I can’t say much about it- it has a decent return though and I haven’t heard of any problems there.

Recommended Routes:

Since this is complicated and theres many combinations above, I’ll summarize

  • Your bank (wire*) => Gemini (GUSD) => Celsius (no fees roundtrip*, 10.51% earn)
  • Your bank (wire*) => Paxos (PAX) => YouHodler^ ($0 deposits, $23 withdrawal, 12% earn)
  • Your bank (wire*) => Coinbase (USDC) => YouHodler^ ($10+0 deposit, $3+$25 withdrawal, 12% earn)
  • Your bank (wire*) => Coinbase (USDC) => Fulcrum ($10+$1.50 deposit, $1.50+$25 withdrawal, 13–15% earn)

Note: Given that you’ll be earning roughly ~$50 every week if you deposit $25k, the fees are negligible (unless you’re moving back and forth a lot). *The above amounts assume you get free wires at your bank, if you don’t, message me for some recommendations. ^YouHodler is for non-US Citizens only.

My current allocations (Dec 2020):

I currently have more than half of my crypto savings inside Nexo right now for the 3x promotion, the rest is split between YouHodler, Celsius, Fulcrum and BlockFi (from a promotion in November). After January, I’ll be rebalancing my money back out of Nexo and BlockFi and splitting them much more evenly between YouHodler, Celsius and Fulcrum. For coins, I’m 50% in USDC, 25% in GUSD and 25% in PAX.

How do they earn this money?

Most of these places operate like a bank does- they hold your money and then use that to earn a profit (lending to other people, lending to other institutions etc). The general ‘consumer’ user story though is that there are these huge crypto whales, who have made a ton of money from crypto (btc, eth etc), but don’t want to sell it to avoid taxation. Thats where you come in, instead of selling, they put their crypto (btc/eth) as collateral for a loan, and get dollars from you to spend on the real world without having to pay taxes since they didn’t sell anything (its a loan)- all while paying interest to you. Others (like Fulcrum) also use this to let people do margin trading on crypto- if you’ve ever traded on margin at your stock broker before, its the same thing here (except you are the one making money instead of the brokerage).

Other Investment Options

I’m still on the look out for other options, but there is only one I’ve found so far that keeps up with

Cadence

Note: You must be an accredited investor for this one (which means you must earn at least 200k year or have $1M net worth), although with recent SEC rule changes theres some loosening of this- such as how couples can pool together to qualify some aspects now.

Cadence lets you get in on short-term business loans, and these seem to range anywhere from 9.5% to 20% (I typically see them hover around 11.50%). This does mean your money gets locked in (unlike crypto above), but the nice thing here is that most of the deals are short/medium term (2–5month loans). You can go to the opportunities section of their website after you’ve signed up to see examples of the previous offerings.

There are some quirks on how to participate though — once you sign up, you’ll get an email when a new deal is coming (typically once every 1–2 weeks I’ve noticed), asking you to participate in a blind Dutch Auction. Essentially, you tell them how much you would invest at different interest rates (ie. if the deal was 9% how much would you put in, vs if it was 11.25% etc)- there is no obligation at this point. Based on the investor interest, they will find what the minimum APY is that would fulfill the amount of capital the borrower wants, and bundle it together to a fixed amount.

Then, you’ll get another email inviting you to fund it with your money if you choose to at whatever interest rate was determined — however for any deal which is a rollover (a previous borrower wanting to continue their loan after it expired), then previous investors get first preference at fulfilling the loan. New investors get to join whatever is left unfilled, and its a first come first serve basis. Finally, if its somehow still open (I haven’t seen this happen), then investors who didn’t submit any interest indications in the Dutch auction earlier will get to join. So essentially, you have to stay on top of your emails to get in :)

Titan

This one is a bit out of place in this article because its investing in the stock market, and I have not funded my account yet, but I’ve been watching this one for a while and it seems to be doing much better than other places like Wealthfront and Betterment so I thought I’d call it out. Its YTD returns for 2020 (as of today, Dec 20, 2020) are 37.50% on their flagship fund. On their newer, small-cap fund that started mid-august 2020, they are up 39.80% in just these 5 months. I plan on moving some money in here soon, as another “slower” place to park money compared to my active investing in my own brokerage accounts :)

Conclusion

As mentioned at the start, all these places are slower than the actual stock market (with the exception of perhaps Titan), so if you really want high returns, learn about more actively investing (I feel like you can get a decent return by reviewing your positions roughly once every 2–3 weeks) or alternatively go buy some ARKK and forget about it for a few years (up >120% this exceptional year, but the majority of my retirement account has been in it since 2017 and has had good returns for me every normal year too).

The benefits of the crypto savings though, its stable (will not lose value like stock market), a pre-specified return rate%, and fully liquid- you can move your money from your bank account to these crypto places and back within 1 hour in most cases.

The content of this article is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.

Former CTO of Fellow Robots, now back to regular corporate tech at Yelp. Good at finding deals, credit cards and travel miles- 36+ countries and counting :)