DeFi For Savings: A Better Choice Than Fiat?

At the end of July 2019, the US Federal Reserve decided to cut interest rates for the first time since 2008. Before that decision, it was easy to find high-yield savings accounts that produced 2.50% APY or greater. Since then, the fed has cut rates an additional two times. As a result, most digital banks offer 1.90% APY or lower on savings.

What’s even more troubling for savers is that the economy, in many important areas, isn’t showing signs of a slowdown. The stock market is still on the uptrend (as of November 7 at least). Additionally, in October there were massive injections of cash into financial markets to boost liquidity (a.k.a. quantitative easing), possibility creating higher inflation levels.

What’s Wrong With Fiat Savings?

Although APY offered by digital banks is supposed to be relative to inflation levels, it’s seemingly more difficult to justify the use of savings accounts that have recently reduced the amount of interest that savers can expect to earn.

Inconsistency is also a problem. Some savings accounts change interest rates on a day-to-day basis. While the fluctuations might be only a few pennies difference for smaller amounts, it could add up to quite a lot of money in the long-run.