The average interest rate for a classic U.S. savings account is just 0.06% these days. Even the most generous banks don't offer more than 1% a year. Money market accounts are not much better and even a high-yield certificate of deposit won't protect your hard-earned savings from the ravages of inflation.

But there are some new kids in town. You may think of cryptocurrencies as high-risk, high-reward gambles, but there are also so-called stablecoins that produce extremely stable long-term charts -- and some of the accounts associated with them come with double-digit interest yields.

The Anchor Protocol account based on the Terra USD (USTC 5.57%) token is the highest-yielding stablecoin solution I've seen. Let's check out the pros and cons of parking your long-term savings in it.

A robot hand puts gold coins in a piggy bank, which stands on the keyboard of a laptop computer showing financial charts.

Image source: Getty Images.

What is Anchor Protocol?

This doesn't even sound like a bank account at first glance, right? Based on the name, you might think we were talking about a procedure for keeping your boat in one place.

That's not too far from the truth, in a metaphorical sense. Anchor Protocol is a money market system where people who want to borrow some capital can connect to other people who want to earn a decent return on their cash assets. This is done via a decentralized finance application based on the Terra USD stablecoin, backed by collateral in the form of several different cryptocurrencies. The exact mix of collateral tokens is automatically managed by a couple of different smart contract platforms, and ultimately managed by the Terra (LUNC 1.70%) blockchain.

The whole Anchor Protocol system currently holds $14.0 billion in deposited funds with $5.9 billion of collateral value. Today, about $3.1 billion is borrowed by users on the other side of the equation. The effective annual percentage yield (APY) for Anchor Protocol holders is 18%, and the annual percentage rate (APR) for borrowers stands at 10.6%. These values fluctuate; the APY was 19.6% on April 30, for example.

You can get started with Anchor Protocol in several different ways. Its cloud-based dashboard lets you add cash to your digital wallet through a credit card service, or through the popular Apple Pay and Google Pay platforms. You could also find a decentralized finance app that has included a small amount of standardized code that adds Anchor Protocol support to any software system. Or you can get really nerdy about it and run that code on your own computer.

But wait -- there's more! You could also buy Terra USD tokens directly and deposit them in an Anchor Protocol service. There are so many ways to go about it, and I'm probably still forgetting one or two options.

So there you have it. Through Anchor Protocol, you can earn a generous annual interest rate by letting other people borrow your money via a decentralized finance application.

The good

The fundamental principles behind the Anchor Protocol are not so different from an old-school bank's money market accounts. Banks offer loans to some people that are backed by assets invested by a different group. The technical machinery and the actual assets involved may be different, but this is a pretty familiar concept.

Those annual interest yields are hard to beat. If you trust the Anchor Protocol to offer yields at these levels for a long time, it seems like a no-brainer destination for your cash savings.

The bad

Traditional savings or money market accounts don't change their yields very often. When they do, you'll get a letter in the mail to explain what's going on. For the most part, though, you can expect the yield you signed up for to stay constant over the years.

Anchor Protocol doesn't do that. Its effective yield is adjusted every month, aiming to stay in the range of 15% to 20%. In May 2022, the target dropped from 20% to 18%, with the idea that this slightly lower rate would be more sustainable for the long haul. Most Anchor Protocol users found out about this adjustment the hard way, and then had to search for the official explanation on their own.

That rate drop illustrates a larger point. The terms and conditions of this ultra-generous system may change at any time. You can't count on the "roughly 20%" target yield to stick around forever.

Furthermore, the lack of a central bank with local branches and real people behind the counter may be a deal-breaker for some savers. Anchor Protocol doesn't have much of a customer service system, unless you're comfortable with reaching out to developers and fellow users through online channels or social media.

The ugly

If you just want a super-simple savings account that will keep your money growing at a constant rate forever, Anchor Protocol isn't for you.

It's also not for you if you think of cryptocurrencies as a tulip-bulb fad, as master investor Warren Buffett does.

Should you start an Anchor Protocol wallet?

This system is not right for everyone, but I do see its appeal in some situations.

Anchor Protocol could be a great choice if you want inflation-beating interest rates and don't mind the involvement of cryptocurrency technologies. It's even better if you're convinced that stablecoins really will stay firm over the long run, and that Terra USD is a reliable implementation of the stablecoin idea. Your returns may vary over time, but earning returns that exceed those you would get from regular savings accounts shouldn't be a problem.

Finally, to make use of Anchor Protocol, you'll also have to be comfortable with managing your savings through an unfamiliar system of cloud-based platforms and mobile apps.

That's a lot of caveats. That being said, crypto investors who are willing to keep an eye on Anchor Protocol's changes and general health might want to take a closer look at this high-yield platform.