Can you get 8% Interest Rate on your US Dollar Savings? (4 August 2020)
In a 2020 world of low interest rates is it really possible to get high yield returns on your US Dollar Savings?
The straightforward answer is - YES, you can get such interest rates on your savings in USD. Here is a screenshot from Binance.com taken from the 4th of August 2020 - by fixing your USD via Tether (USDT) or Binance USD (BUSD) to a period of 90 days you would get a return of 1.972% on the capital for keeping your funds saved during these 90 days (or in simple banking terms - 8% per annum):
But the Fed rates on the US Dollar are near zero - so what's the real deal here? Are there any strings attached?
Let's explore this product and see what are the risks involved.
How safe is Binance?
Binance in a way has become like the HSBC / Barclays of the Crypto world, it's a private company and it has a "stock" known as Binance Coin - which is pretty much reflecting the future of Binance.
As of 4th of August 2020 the value of 1 Binance Coin (BNB) is just shy of $22.00 so considering this coin was worth less than $1.00 when it was founded it does tell you what the public thinks about Binance.
Some people would treat Binance as a safe place to store their Crypto coins, some would prefer to use cold wallets (which could get lost), and nobody knows what could become in the future of Binance in terms of regulation, hacks, lawsuits, and many other things which can very quickly turn Binance and its coin into a losing proposition - however the same can be said about Google, Yahoo, Amazon etc.
There is no doubt Binance is constantly working to improve what it has to offer, and in our view the site is quite solid. There are no guarantees in this world for anything but it definitely does look like the Savings products Binance is offering are worth consideration.
8% per year - it sounds too good to be true
During the 1990s the rate on the Australian Dollar was high as 5% or even 6%, the British Pound also had offered high interest rates as well ... one of the very main reasons Bitcoin and other Cryptos rise in value is because investors are looking for high yields with as less risk as possible.
Whilst FIAT currencies are currently offering zero to slim rates on your money - Crypto seems to offer the opposite.
During the Coronavirus crisis lots of investors lost money in stocks especially during March - April 2020, and Crypto seems to offer safety, investors prefer that safety over unsafe products like stocks which can yield nice returns but carry a higher risk.
By all means this doesn't imply that savings your money with Binance is risk free, however please note the 8% quoted today might not be the same % offered tomorrow, so let's explain a bit how the product works.
The 8% is not guaranteed to be paid over a course of a year!
What Binance is offering is a sort of a "Fixed Deposit" that will mature after 7, 14, 30 or 90 days ... your interest for this period is guaranteed as long as you don't withdraw your Crypto before it matures, however once that period ends the next interest rate you would get is unknown ... it could be 7% or it could be 9%, or it could be far more or less than that ... it's dynamic and it would change from day to day ... but that's a good thing, because that explains why the product is safe, the product is based on supply and demand.
Who pays that 8% to me? Where is this money coming from?
The interest is paid from people who take secured loans from Binance. Anyone can take a loan because they are secured!
What does it mean?
It means that if someone for instance holds $5,000 worth of Crypto in Binance, let's say in USDT and he wants to loan more money against what he holds in Binance then he can lock his $5,000 in Binance and then he would still be able to trade with this $5,000 but he won't be able to withdraw it ... he would then have potentially up to $10,000 to trade with (less interest rates) and that could increase his earnings if he chooses to bet for instance on the Bitcoin and vice versa.
Binance against this 8% charges 18.25% interest rate per annum from the borrower, it's not cheap but some people are willing to take loans in order to place bets in the market that might help them get more money or alternatively they can lose it - but you as the lender don't take that risk, you lend that money to Binance and Binance lends that money to borrowers, so Binance is basically paying you interest rate like a bank - they get a fee from it but you also get a decent return for your investment.
Additional fees to consider?
If you have $1,000 in your USD account whether it's an account based in the US or whether's it's an account based elsewhere - as of today you can't exchange $1,000 USD for $1,000 in Tether or BUSD, most exchanges actually still work with Bitcoin so perhaps using LocalBitcoins.com to buy Bitcoin and then send that Bitcoin to Binance and exchange it to USDT could be a move that would occur as less fees as possible - however it's impossible to avoid these fees, thus
If you are planning on investing $30,000 in Binance and get 8% on these funds (assuming it stays 8% throughout the year), you probably would end up getting 5%-6% in the first year as 2%-3% could be wiped out just in fees to buy the Tether or BUSD currency ... it's still a good proposition overall and everything here makes sense - the product is built in a solid way and it looks like what Binance is doing here is quite solid - which only adds more trust to this type of product.
What happens if I change my mind and want to withdraw my money?
The good thing about this product is that it's 100% flexible, so you have access to your Crypto funds all the times, and unlike a bank that might not let you withdraw your funds before maturity or would charge you a penalty for it - Binance simply has a basic rule - if you withdraw your Crypto before maturity then you simply won't get your interest rate paid but you would get 100% of your capital back.
That's why if you are unsure about long term then choose the 7 day product for 7.20% (as of today, 4th of August 2020) - this way you can wait a week and then you would get paid your interest and if you want to withdraw your Crypto afterwards - you can and you would still get paid for your savings.
Binance is also offering daily fixed deposits where as long as you save your Crypto for a full day (starting from the next day as the first day is never going to be full 24 hours when you make your deposit) - then you would get a nice return as well, but here the interest rate on Tether or BUSD is going to be around 5% per year instead of 8% but the benefit is your interest is paid daily and you don't have to tie your money to a long term in order to get paid.
Overall - Conclusions
We definitely think Binance products are quite solid and seem to be promising, because the fundamentals behind these "Savings Accounts" are quite clear to understand.
Likewise since Bitcoin is still the number 1 Crypto currency out there and Bitcoin is mainly compared against the US Dollar as of today, then Crypto currencies such as BUSD and Tether should keep on attracting high interest rates because investors and traders love trading with them (and yes, they might make 7% in a day or a week but they take a huge risk - those who are not into it can simply sit back, relax, save their hard earned dollars and enjoy a nice interest on it).
The main and biggest risk of all to all this is simply the risk that Binance will collapse and crash, due to a certain big event, regulation, hacking or anything similar - but just like Google and Amazon seem to protect themselves nicely so far - it looks like Binance is going in the same direction, and it definitely seems like a great product for investment purposes. We totally recommend it.
How can I sign up to Binance?
Please use the following link to sign up with Binance: