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That’s a question I receive sometimes from my readers.
This article goes into more detail about what the Celsius Network interest rates (also called reward rates) are, the difference between APR and APY, why banks pay so little, and how Celsius can afford to offer such high rates.
Whatever amount of crypto you deposit onto the Celsius Network platform begins earning interest (Celsius calls them rewards) immediately.
Your rewards are credited to your account every Monday based on your holdings the previous Friday morning.
Your rewards (interest payments) can come in two types of crypto. In-kind means you receive your reward in the coin/token earning the interest. Or you can earn in the CEL token, the Celsius Network’s own token.
If you earn in CEL, you receive a higher interest rate as a bonus, anywhere from 5% to 30% more than the in-kind rate.
The bonus you receive depends on what percentage of your total assets is in CEL tokens, or the total number of CEL you own.
If your CEL holdings equal 25% or more of your assets on the Celsius platform, or you hold 25,000 CEL tokens, you’re at the Platinum level and earn a 30% bonus.
(You’ll also receive a 25% discount on the interest you’ll pay if you take out a loan using crypto as your collateral.)
Interest rate bonuses begin at the Bronze level, which earns you 5% interest (and a 5% discount on the loan interest you pay).
APR is short for annual percentage rate. That’s the rate banks say you’ll earn on deposits.
APY is short for annual percentage yield. Banks don’t give you this number, because it will likely be almost as low as the APR number.
Celsius calculates rewards every Friday, and adds them to your account every Monday.
So compounding takes effect. The APY is the total amount you’ll receive at the end of the year from the APR and all the weekly compounding.
Since the APY is higher than the APR, Celsius and other crypto rewards platforms only display the APY rate on the websites and in their apps.
It makes the rate more appealing. And if, like Celsius, those other platforms have an interest calculator, you can calculate exactly how much you’ll receive at the end of the 52-week period, at the current reward rate.
Want to know what the APR is? Use the calculator on this website.
It’s not just Celsius Network interest rates that change. All other rewards platforms have variable rates, especially if they pay rewards weekly.
These rate changes are due mostly to market forces.
Banks use the base rate that the Federal Reserve, the Bank of Canada, or other central bank sets for its currency to determine the interest rates they pay you.
The rate the commercial banks pay has to be low enough to enable them to make boatloads of money.
The Celsius Network rates aren’t based on any centralized entity or system keeping interest rates artificially low.
They’re based on what Celsius can earn by lending out your crypto tokens somewhere else in the cryptocurrency space, or by providing liquidity on various DeFi (decentralized finance) platforms.
If demand for tokens goes up, Celsius can demand higher rates for its large pools of assets. If demand goes down, there will be fewer borrowers, and less need for liquidity. So interest rates go down.
Have you ever wondered why you receive less than 1% interest on your savings at a bank, yet have to pay anywhere from 3% or more for a mortgage all the way to 20% or more on credit card interest?
It’s because banks have to make enormous profits for their shareholders. And that interest rate spread isn’t enough for the banks.
They’re authorized to legally create money out of nothing using fractional reserve banking. I’ll call it FRB for this discussion.
With FRB, if a bank receives a $1 million deposit, it will pay perhaps 1% interest, maybe even 5% ($10,000 to $50,000) per year. It then turns around and lends out most of that $1 million, earning more interest than it pays to the depositor.
That’s not where the huge profits come from. Those profits are from FRB.
If the FRB rate is set to 10%, that means the bank must hold 10%, or $100,000, in reserve. It can lend out the remaining 90%, or $900,000.
If the recipients of that $900,000 turn around and deposit the loan funds, the bank can lend out 90% of it, or $810,000. If that amount is then deposited, the bank can lend $729,000, another 90%.
You can see where this is going. The bank could end up lending out well over $6 million simply because it received a $1 million deposit.
If it lends out all the money at an average 10% rate, it will receive $600,000 per year, while it pays out no more than $50,000 per year to the original depositor.
New Bitcoin and some other cryptocurrencies are created by mining. New tokens on other networks are created by staking. Regardless of how they’re created, all of these tokens are created as a result of transactions on the network.
They’re not, and cannot be, created out of thin air (or electrons). They’re created based on algorithms, not on the whim of bankers.
And many have a set number that can be created, unlike fiat currency, which can be “printed” into existence by central banks and by fractional reserve banking.
The Celsius policy is to return a much higher percentage of what it earns from loaning out our crypto and providing liquidity. Why? Because it’s creating a community, and supports that community.