I've encountered a dilemma regarding my savings strategy.
I'm torn between saving in a traditional bank, which offers a 4.01% interest rate, or opting for saving in HBD with a 20% return.
To resolve this, I'll need to do some quick math.
Let's assume I aim to accumulate $1000 by the end of one year through HBD savings. To achieve this goal, I would need to deposit an initial amount of $5000.
On the other hand, if I were to yield the same amount in a conventional bank that offers an interest rate of 4.01%, how much would I have to deposit?
Let's do some math.
Clearly, the traditional bank saving option requires a larger initial deposit at about $24.6K compared to $5K in HBD Savings. However, let's delve deeper into the advantages and disadvantages of both methods.
Saving in a traditional bank
Pros:
- It's a safer method as banks are heavily regulated and insured.
- There are no-ramp charges to consider, such as the case of converting to cryptocurrencies.
- Funds are easily accessible whenever necessary (assuming the bank is operating!).
Cons:
- A larger initial deposit is required to achieve the desired return. i.e. more funds are locked.
- If funds are withdrawn prematurely, all accrued interests are forfeited.
Saving in HBD
Pros:
- It offers a higher return for a smaller deposit.
- The surplus that would otherwise be deposited in a traditional bank can still be kept in the traditional bank for the 4.01% of interest.
- After the initial term, the funds can be left in the HBD account to accrue compound interest.
- Interest is calculated daily for potentially higher yields.
Cons:
- There's higher risk as the returns are dependent on the longevity of the Hive blockchain.
- There's the potential risk of the HBD depegging from its usual value (Think Luna Terra!).
- Some cost to on-ramp to cryptocurrency.
- Loss of private keys to the account.
- Risk of account being hacked.
Conclusions
There is appeal with a smaller principal sum earning the same interest.
The on-ramp cost can be negligible if the yield remains 20%, and if the plan is to save in HBD for many years.
The risk of saving in HBD is also real. I guess precautions can be taken against hacking and loss of keys. The rest is based on trust of the blockchain.
P/S: This is not financial advice, and please do your own due diligence before investing.
If you read this far... and if you are a like-minded Hiver who is on the path to learning more about Hive and crypto investing, and if you like to be tagged when I write such posts, I welcome you to leave a comment below and let me know. We can form an alliance to support each other's growth.
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