How Does Bitcoin Interest on Cash Work?

With the launch of Bitcoin Interest on Cash, many Bitcoiners want to dive deeper to understand how the product works. This blog post explains the inner workings of Bitcoin Interest on Cash and where the interest comes from.

How Does Cash at River Earn Interest in Bitcoin?

US dollars deposited on River are held in an interest-bearing account at our partner, Lead Bank. Dollars are FDIC insured up to $250,000. Interest accrues daily and is paid out by Lead Bank monthly. 

River automatically converts the amount of interest that accrues each day into bitcoin. The bitcoin is paid out to clients at the beginning of the following month and can be withdrawn or sold immediately.

What Are Interest-Bearing Accounts?

Interest-bearing accounts are cash accounts at banks. In October 2024, the average rate of interest earned on deposits at a bank was 0.46% per year.

Because cash deposited in an interest-bearing account is held at a federally chartered bank, these funds are typically insured by the FDIC. This means that in the event of a bank failure, a depositor will get their funds back in full. Notably, amounts above a $250,000 limit are not insured.

How Do Interest-Bearing Accounts Generate Interest?

Interest-bearing accounts generate interest from the income earned by a bank. Banks can earn income in various ways, including making loans to individuals and businesses, purchasing securities such as US government bonds, and earning interest on reserves held at the Federal Reserve.

Are Interest-Bearing Accounts a Good Way To Hold Dollars?

Interest-bearing accounts can be a preferable way to hold dollars if they offer a relatively high rate of interest and maintain deposit insurance. However, over the long term, all interest-bearing accounts typically underperform inflation. When the rate of inflation is higher than the interest rate earned from an interest-bearing account, the savings held in the account lose value in terms of purchasing power.

To illustrate this, over the past five years, a High-Yield Savings Account (HYSA) would have provided total returns of 11.2%. However, after adjusting for consumer price inflation, cash held in HYSAs lost 9.2% of purchasing power.

What Are the Advantages of Holding Cash at River?

By automatically converting daily accrued interest to bitcoin, cash held at River combines the advantages of a high-yield cash account with the price performance of bitcoin. There are several additional advantages to be aware of:

• Earning bitcoin with interest eliminates the risk of losing your initial investment. Additionally, by accumulating bitcoin passively, you can ease into a bitcoin investment as the price swings over time.
• Cash deposits used for Target Price Orders will continue to earn interest until the order is executed.
• Funds used for hourly and daily recurring orders are deposited in advance of their execution. In this case, this cash will earn interest until the recurring order is executed.
• Accrued interest is converted to bitcoin daily, instead of at the end of the month. You don’t have to wait for a payout to start taking advantage of bitcoin’s price performance.
• All bitcoin earned is held in full reserve custody.