Bitcoin Compound Interest Explained – Where to find?

What is a crypto compund interest saving account

Bitcoin Compound Interest

  • Nexo offers Bitcoin interest accounts with daily compounding.
  • Kraken, Crypto.com, and YouHodler also compound the Bitcoin interest every week.

You should check out the best crypto interest rates to receive the best interest on your crypto holdings.

What is Compound interest?

Bitcoin Compound Interest Explained where money grows over time passive

Compound interest is the interest on a deposit calculated based on the initial principal and the accumulated interest from previous periods. 

Another common expression for compound interest is  “interest on interest.” It simply means that you also earn interest on the received interest payouts.

Simple Interest VS Compound Interest

Interest can be either simple or compounded. 

  • Simple interest is based on the principal amount of your deposit.
  • Compound interest is based on the principal amount and the interest accumulating every period. 

Simple interest is calculated only on the principal amount of a deposit. It is easier to determine and compare simple interests. All our interest rates compared are simple, even though most companies allow for compound interest earnings in some way.

Yearly, Monthly, Weekly, and Daily Compound Interest

The rate of compounding effect depends on the frequency of the compounding periods. A compounding period is often similar to interest payout frequency.

Usually, crypto interest accounts pay interest and compound on a monthly, weekly, or daily basis.

The table below shows how different companies pay out the interest and how frequently you compound your interest earnings.

  • Automatic: The payouts go directly into the interest account
  • Manually: You have to deposit the interest payouts into the interest account

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*Interest paid out after locking period which can be 7, 14, 30, 60 or 90 days. 

Crypto APY VS APR?

Bitcoin compound interest account APR VS APY

Most crypto lending and interest accounts yield APR or APY.

APR stands for annual percentage rate. APR does not take compound into account. For marketing purposes, this is more applied to money you borrow, like a credit card, car loan, or personal loan.

APY stands for annual percentage yield. APY does take compound into account. APY typically applies to money you place in a savings or interest account for marketing purposes.

Crypto.com uses the term % p.a., which means percentage per year.

What is the return on investment (ROI)?

Another common financial term used is ROI, or return on investment. Comparing interest accounts is not so common since they use APY, as described above.

For example, ROI is used to compare an investment in Bitcoin versus stocks. An example would be that you are about to invest $1000 over three years and want to know the predicted ROI before making your investment.

Sometimes, ROI is given as a percentage and sometimes a multiple number. 

Crypto Compound Interest Calculations

Here, we will explain the cryptocurrency compound with some calculations.

There are three different ways to HODL your cryptocurrencies. 

  1. HODL with no interest
  2. HODL with simple interest
  3. HODL with compounding interest

Let´s make an example with calculations. Pretend we have Bitcoin worth $1000 today and we HODL for 30 years. For simplicity, Bitcoin doensn´t gain anything over 30 years in value (unlikely). The calculations are based on a 10% interest rate.

  1. HODL with no interest, $1000
  2. HODL with interest, $4000 ($100 per year in 30 years)
  3. HODL with compounding interest, $17449 (1000*1,1^30)
Cryptocurrency compound interest vs linear interest vs no interest graph

Is it essential to Compound crypto interest Earnings?

As you can see from the calculations above, it’s essential to compound your earnings from crypto interest accounts.

However, the most important thing to remember is manual compounding, where automatic is missing.

If the compounding is made automatically monthly, weekly, or daily, it will not significantly impact. However, if all things are equal, we would prefer the daily compounding over the monthly compounding. But remember. IFinding the best crypto interest rates APY is more important than finding the most frequent compounding account. 

Risks with Crypto Investments

Ultimately, risks are the most important factor to handle regarding investment, particularly with crypto.

Do not stare unthinkingly at the interest rates and whether the compound is accessible.

Always ask yourself if the service you will use is secure and has a history. Read more about handling risks in our crypto risk management article.

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