This crypto startup is offering 8.6% interest on savings accounts 123 times the national average – Yahoo Finance

If theres one negative aspect to life at record low interest rates, its earning almost nothing on the cash you have saved at a bank.

Certificates of deposit, or CDs, which require you to lock up savings for a predetermined amount of time offer slightly better interest rates, but not much better than the paltry 0.07% annual percentage yield (APY) that is the current national average for savings accounts, according to Bankrate.

But one crypto startup, BlockFi, is letting users earn at a rate thats nearly 123-times higher on dollar-backed cryptocurrencies known as stablecoins. More specifically, the company is currently paying an 8.6% interest rate on savings accounts holding the Gemini dollar, the stablecoin introduced by the Winklevoss twins regulated and audited New York trust company Gemini. Interest is paid out monthly by BlockFi in either traditional dollars, or a favored cryptocurrency like bitcoin or ether.

You can start earning your interest and gaining passive exposure into a new asset class, BlockFi co-founder Flori Marquez explained in an interview with Yahoo Finance Live. The people who use our products span from everyday consumers who are buying bitcoin for the first time to even some small corporates.

Its important to note that the higher interest rates BlockFi offers on its accounts carry a special set of risks. Unlike traditional savings accounts, BlockFis are not FDIC-insured, which means they dont carry the traditional $250,000 of protection per depositor. Even BlockFis disclaimer warns customers that their savings account is not a risk-free product and loss of principal is possible.

Despite those risks, hundreds of thousands of customers have turned to the Peter Thiel- and Coinbase Ventures-backed platform to either trade cryptocurrencies or earn interest through BlockFis savings accounts, according to Marquez.

As opposed to most fintech platforms, our average account size is actually $50,000, she said. So people are depositing... a meaningful amount of assets.

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Similar to banks, BlockFi acts as a financial intermediary thats able to benefit in the gap between borrowing and lending. As Yahoo Finances Brian Cheung recently explained in this weeks Yahoo U installment, banks profit by enjoying a larger return on money loaned out than the interest they pay on deposits. As BlockFi CEO Zac Prince explained to Yahoo Finance in the past, the companys similar role as an intermediary comes with another perk unique to the crypto space: a lack of other established players.

We're the largest lender of cryptocurrencies to institutional borrowers, who today are primarily market makers and proprietary trading firms that are active in this asset class and have been for a while, but they can't finance that activity with their traditional prime broker relationships because banks aren't active in the space yet, he said. That's the reason why the yields are still high, because this is a new asset class. It's nascent, it's growing quickly, and it doesn't have access to the traditional sources of debt capital. And as a result, when we're lending, we're able to charge higher rates, and then we pay that back to the folks who are our clients on the front end.

As the industry matures, Prince expects that BlockFi will likely have to lower interest rates on its savings accounts at some point, but rates have held at 8.6% for more than a year.

Prince also stressed that interest earned on BlockFis accounts are also taxed much like interest revenue from traditional bank accounts, and that BlockFi provides users with an annual 1099 form to help with tax filings.

Were heavily regulated at the federal level and at the state level as a financial services company in the U.S., he said.

Zack Guzman is the co-host of the 11AM - 1PM hours on Yahoo Finance Live as well as a senior writer and on-air reporter covering entrepreneurship, cannabis, startups, and breaking news at Yahoo Finance. Follow him on Twitter @zGuz.

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This crypto startup is offering 8.6% interest on savings accounts 123 times the national average - Yahoo Finance