Keeping your money in the bank and investing in cryptocurrency are polar opposites when it comes to risk and reward. Whereas bank savings accounts are FDIC-insured and stable in value, cryptocurrency investments have no guarantees and no intrinsic value backing them.
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Even the stock market, which is often considered volatile, consists of companies that are required to report their actual earnings in black and white every quarter. Cryptocurrencies, on the other hand, are fueled by hope, speculation and rumor.
Yet, this isn’t to say that investing with savings or crypto is “bad” or “good.” Rather, you should be aware of what you are getting — or aren’t getting — when you choose to invest in either of these asset classes.
Read more about whether you should keep your money in the bank or invest in crypto.
What Is Your Risk Tolerance?
Your risk tolerance could tell you right off the bat whether you should invest in a bank savings account or cryptocurrency. If you can handle owning an investment that could drop by 50%, 75% or even more over a relatively short time period, then cryptocurrency may be an acceptable risk for you.
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If, on the other hand, you can’t sleep at night when your investments drop by even 5%, you’re a candidate to keep your money in a savings account instead.
With a savings account, you know exactly what you’re getting: a secure, insured bank investment that won’t change in value. The flip side of that is that you will earn only a minimal amount of interest — about 0.60% if you pick a high-yield online savings account or as little as 0.04% if you earn the national average rate.
Cryptocurrency, on the other hand, is truly the Wild West of the investment world. To potentially earn the astronomical returns of a token such as Shiba Inu — which was up a staggering 49 million percent at one point in 2021 — you have to be prepared to lose your entire investment. Cryptocurrency doesn’t pay dividends or have any intrinsic value, so you’ll have to rely on the broader acceptance of the crypto you buy — along with a good dose of speculative investment support — to earn big returns.
What Are Your Investment Objectives?
Savings accounts and cryptocurrency are so completely different that choosing between them can simply come down to what you are looking for out of your investments.
If you’re looking to preserve your principal, which may be appropriate if you’re an older investor, are saving for a short-term goal or are simply very risk averse, then keeping your money in the bank is likely your best option. FDIC-insured savings accounts don’t pay much, but you won’t have to worry about losing what you’ve saved. And if the Fed raises interest rates in 2022, as is widely anticipated, then savings yields will go higher as well.