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How to Earn Interest on Ethereum

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Ethereum is the 2nd largest cryptocurrency by market capitalization, and its value has appreciated faster than Bitcoin over the last 12 months. Ethereum differs from Bitcoin because you can use smart contracts on its blockchain. 

Smart contracts are code on Ethereum’s blockchain, which can handle crypto assets autonomously, and enables you to earn interest on Ethereum tokens in unique ways.

2 Ways to Earn Interest on Ethereum

The 2 most common ways to earn interest on Ethereum is through Ethereum staking and loans. Lending platforms like BlockFi and Celsius offer savings accounts with interest rates between 5.25% to 6.35% annually. These platforms use your funds to supply loans to institutional and retail investors, and they offer you a competitive interest rate for doing so. 

Alternatively, you can stake your Ethereum on the Eth 2.0 beacon chain to earn between 4% to 10% annually. Ethereum staking is being used to upgrade the Ethereum blockchain using what’s called Proof-of Stake consensus. 

This upgrade will lower the cost to transact on Ethereum’s blockchain and greatly increase the transaction throughput on the blockchain. If you choose to stake your Ether tokens, you won’t be able to withdraw your funds until the Eth 2.0 upgrade completes later this year.

Step 1: Open a crypto account

There are many platforms that let you earn interest on your Ethereum tokens. This interest is paid to you in Ethereum, so your initial investment and interest will appreciate if Ethereum’s token goes up in value. Conversely, if Ethereum depreciates, then your interest earned and initial investment will go down in value.

Some top lending platforms that offer competitive interest-bearing savings accounts for Ethereum are Celsius, BlockFi and Nexio.io. These platforms also let you take out loans in cryptocurrency, but you need to use cryptocurrency as collateral. This is a great option for investors who may need a loan but don’t want to sell their cryptocurrency holdings.

You can also make an account with a cryptocurrency exchange to stake Ethereum. Staking Ethereum is a great way to earn interest, as it’s a secure and simple way to earn more Ethereum. You can join the waitlist to stake Ethereum on Coinbase, or you can get started staking Ethereum today on Kraken. 

If you want to stake Ethereum independently, you can do so using an Ethereum wallet like Argent. However, you need to own 32 Ethereum tokens to stake your tokens independently. Exchanges aggregate investors’ crypto to stake it on the blockchain, so you can deposit any amount of Ethereum on Coinbase or Kraken. These exchanges charge an administrative fee for staking your Ethereum tokens, taking around 15% to 25% of the interest you earn.

Best For
No or Low Fees
Overall Rating
get started securely through BlockFi’s website
Best For
No or Low Fees
N/A
1 Minute Review

Maybe you think cryptocurrency is the future, or perhaps you were swept up in the initial waves of Bitcoin. BlockFi may be your next step if you’re ready to evolve as a crypto investor.

Whether you’re a native crypto user or curious enough to start investing, BlockFi seeks to bring institutional-grade financial products to crypto markets that often face restricted access. It strives to bring clients low-cost, simple applications designed to maximize the potential of crypto assets. Learn more in our BlockFi review.

Best For
  • Crypto native clients. You own Bitcoin now. You’re the friend who fills in the blanks when conversation turns to cryptocurrency, and you devour crypto literacy content like it’s your job (and maybe it is). BlockFi’s platform can help take your crypto assets to the next level.
  • Crypto fringe clients. If you’ve dabbled in buying alternative assets like crypto or know enough to be interested, BlockFi can help you take the next step.
  • Crypto curious clients. If you’re both intrigued by bitcoin and the type of person who obsessively learns everything you can about things you’re new to, BlockFi’s crypto asset platform might be the entry point you’re looking for.
Pros
  • Mostly fee-free platform
  • Market-best interest rates
  • Earn interest, trade and borrow from a centralized hub using the BlockFi app
Cons
  • Mostly restricted to those with a base knowledge of cryptocurrency
  • No dedicated relationship with an investment advisor, so best for those who have a solid handle on crypto trading
Best For
Earning Rewards
Overall Rating
earn free crypto securely through Coinbase’s website
Best For
Earning Rewards
N/A
1 Minute Review

Coinbase is one of the Internet’s largest cryptocurrency trading platforms. From Bitcoin to Litecoin or Basic Attention Token to Chainlink, Coinbase makes it exceptionally simple to buy and sell major cryptocurrency pairs. 

You can even earn cryptocurrency rewards through Coinbase’s unique Coinbase Earn feature. More advanced traders will love the Coinbase Pro platform, which offers more order types and enhanced functionality.

Though Coinbase doesn’t offer the most affordable pricing or the lowest fees, its simple platform is easy enough for complete beginners to master in as little as a single trade.

Best For
  • New cryptocurrency traders
  • Cryptocurrency traders interested in major pairs
  • Cryptocurrency traders interested in a simple platform
Pros
  • Simple platform is easy to operate
  • Comprehensive mobile app mirrors desktop functionality
  • Coinbase Earn feature rewards you with crypto for learning about available coins
Cons
  • Higher fees than competitors
Best For
Crypto futures traders
Overall Rating
Best For
Crypto futures traders
N/A
1 Minute Review

Kraken is a cryptocurrency that offers access to more than 50 supported coins and tokens, staking capabilities, futures trading and more. Kraken offers a variable maker-taker fee schedule, which often results in lower fees compared to flat-rate brokerages.

In addition to a wide range of crypto choices, Kraken offers customizable ordering platforms and mobile apps that you can use to fully refine your trading experience. There’s plenty to love about trading on Kraken. It appeals to both seasoned professionals and new investors looking to learn more about the market.

Best For
  • Cryptocurrency investors looking for a wide selection of supported assets
  • Crypto futures traders
  • Beginner investors looking for maximum account security
Pros
  • Wide selection of supported tradable assets
  • Straightforward platform is easy for new users to master
  • 24/7 customer service available via live chat
Cons
  • Maker-taker fee schedule may confuse some users
  • No option for phone or email customer service

Step 2: Look at interest rates

For cryptocurrency lending platforms, interest rates are calculated by the supply and demand for loans on the platform. While these interest rates have been relatively stable, there’s no guarantee that you’ll earn 5% to 7% annually over the long term. It’s a good idea to monitor the interest rate you’re earning on your Ethereum every once in a while to know exactly how much interest you’re earning.

If you decide to stake your Ethereum tokens, the interest rate you earn off of staking fluctuates with the supply of Ether tokens staked on the blockchain. It’s estimated that Ethereum staking will earn between 5% to 10% returns annually. The Ethereum tokens you earn from staking are split proportionally between all staked Ether on the blockchain, so the more investors that stake Ether tokens, the less interest you’ll receive. 

Step 3: Add Ethereum to your portfolio

To fund your account on these platforms, you need Ethereum tokens. If you don’t already own Ethereum tokens, you can use your bank account to wire funds to your BlockFi account. Otherwise, you’ll need to purchase Ethereum on a crypto exchange and send your tokens to the platform you want to earn interest on. 

Some exchanges like Coinbase and Kraken let you earn interest on your Ether tokens directly on their exchanges in the form of Ethereum staking.

Step 4: Earn interest

The interest rate you earn will differ depending on whether you stake your Ethereum tokens or use a lending platform. If you stake your Ether tokens on Eth 2.0, your tokens will be locked up for almost a year minimum, so you can’t access your funds even if interest rates fall. 

If you’re earning interest on a lending platform, then you should monitor for fluctuations in interest rates, as you may be able to use several platforms to earn the highest interest possible. Different platforms have different interest rates, and each cryptocurrency has different interest rates as well. Some investors choose to switch between different cryptocurrencies to earn the highest interest rates possible.

How Does Compound Interest Work for Ethereum?

Most platforms that offer interest on cryptocurrencies offer compounding interest rates. Compound interest adds the interest you earn to your account, so you can earn interest on your initial investment plus the interest you’ve already earned.

 BlockFi compounds interest every month, whereas Ethereum staking doesn’t compound at all. Seeking out compounding interest rates for Ethereum will likely earn you more than simple interest over the long term.

Pros and Cons of Earning Interest on Ethereum 

While there are clear benefits to earning interest from Ethereum, it’s a much riskier investment than a normal savings account. Although crypto savings accounts are low risk, you’re still exposed to cryptocurrency which is a highly volatile asset. 

Let’s take a look at the risks associated with Ethereum’s volatility. Say you earn interest with Ethereum on BlockFi, and you invest in 10 Ethereum tokens for $15,000 ($1,500 per token). If Ethereum is worth $2,500 at the end of the year, then your initial investment will be worth $25,000, and you’ll be earning interest on this $25,000 plus any interest accrued.

Alternatively, if Ethereum is worth $1,000 at the end of the year, your account value will decrease to $10,000 plus any accrued interest. The accrued interest on your investment will increase the amount of Ether tokens you own, but the USD value of your savings account would go down.

Should You Stake Ethereum?

Staking your Ethereum tokens is a great way to grow your cryptocurrency holdings. The funds you stake on Ethereum’s blockchain will be locked up until Eth 2.0 fully launches, and there isn’t a set release date for the launch yet. If you stake your Ethereum tokens, you’ll need to be ok with not having access to your tokens for up to a year. 

Frequently Asked Questions

Q

Can I get free Ethereum with a crypto interest account?

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Can I get free Ethereum with a crypto interest account?
asked
A
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Most platforms that offer interest bearing accounts for Ethereum don’t offer free Ethereum for signing up. However, BlockFi offers investors $10 of free bitcoin for every friend that uses their referral code. If you want, you can convert this Bitcoin to Ethereum, essentially earning you free Ethereum.

answered
Q

What is Ethereum 2.0?

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What is Ethereum 2.0?
asked
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Ethereum 2.0 is an upgrade to the Ethereum blockchain that switches the consensus model from Proof-of-Work (PoW) to Proof-of-Stake (PoS). Proof-of-Work consensus secures blockchains through cryptocurrency miners, whereas Proof-of-Stake secures blockchains through validator nodes that have a financial stake in the blockchain’s cryptocurrency. With a PoS system, Ethereum will be able to handle many more transactions per second at a much lower transaction cost.

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