Everyone knows that interest rates are abysmally low nowadays, especially for savings accounts in the US. When I was younger, I remember speaking with my grandfather, who recommended investing in Certificates of Deposit for 1-to-5-year savings at 5%.
Now, my TD Bank savings account has an interest rate so low, they just round it to 0.00 on my statements, and the best CD I can find today is 1.10%. The best liquid savings I’ve found is Ally, where I store my emergency fund, at 1%. Our government wants to stimulate economic growth by discouraging saving (they call it hoarding to make it sound bad) money, so the Fed sets incredibly low interest rates for everything (except student loans; can I get an Amen?!).
Terrible economic policy discussions aside, I’ve found a couple ways to help lessen the pain of saving.
As part of diversifying my savings, I have money in a 401k + Roth IRA through my work, and a small percentage in commodities like gold and Bitcoin that I set up by myself.
In May, as an experiment, I set up an account at BitBond, a peer-to-peer lending service, which was advertising an average yield of over 20% APY. Essentially, I view it as a slightly riskier CD. People ask for loans for various business ventures and explain their income and repayment plan, and you can bid as low as .01 Bitcoin (~$4 at the time I bid) on their loan. Each of the loans is assigned a rating based on the history of the loanee and his income, and you can choose to loan in either US Dollars or Bitcoin, with Bitcoin as the source.
I dropped in $40 worth of bitcoin that I didn’t mind losing to see what would happen. Here’s my results, and a comparison to my TD Bank savings account, in which I left exactly $1000 after transferring my savings to Ally, just to keep the account active.
After two months, my TD account made 6 cents of interest. Here’s one month’s payment for proof:
Now, for Bitbond:
As you can see above, each loan is classified A-F, with A being the highest rating and the lowest interest, and F being the most risky, with greatest chance of reward. I’ve diversified my loans by putting the minimum in most of the loans and spreading out the risk by investing in different classes of loan, A through E.
In the same time on Bitbond, I’ve received 60 cents in interest, or 10 times more interest with 25 times less principal invested. They project that I’ll be getting 23% APY based on my investments spread this year.
Now that we’ve seen the numbers, I’d like to point out a couple things. This method of investing is significantly riskier than a normal bank account – as you can see above, two of my loanees are late on their payments, which means I’ve gotten no interest on them. There’s a nonzero chance I’ll never get that money back. I justify this by making sure I don’t care about getting this money back, and that it’s a very small portion of my overall portfolio, and by diversifying my loan choices.
Secondly, Bitcoin is a relatively new and unstable currency (though, it might be more stable than the Pound right now! Zing.) It is, however, an incredibly exciting and useful technology that I choose to support with my dollars. There is a chance that the price of Bitcoin will fluctuate enough that the growth of the currency itself might outpace the interest you receive from this investment. If you want to learn more about Bitcoin investment, reddit.com/r/bitcoin, reddit.com/r/cryptocurrencies, and reddit.com/r/bitcoinmarkets are fantastic resources.
Also, I’m not sure if these results will scale linearly with more money invested. There might be a point of diminishing returns with P2P lending, and I might put in some more money to test the waters, but I don’t want to be overly optimistic.
Finally, I want to reiterate that I am not, by any means, an expert in finance, Bitcoin, or cryptocurrency. This is just something that I’ve been studying on my own for a while and wanted to share with you.
Thanks for reading! Stay smart. Stay healthy. Peace.