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Citibank's New Saving Grace

Citibank is entering the crowded field of high-yield online savings with the e-Savings account, which offers 4.5% with no minimum balance required.

While Citibank distinguished itself as one of the first big banks to offer dial-up services when online banking was in its infancy, the New York City-based institution, a unit of Citigroup (C), has been late to the game in offering a high-yielding online savings account.

As recently as October, 2005, Citibank's online savings account gave consumers a mere 0.6% annual percentage yield (APY) while competitor ING Bank offered 3.4% APY on its Orange Direct account. ING's high yields helped lure lots of new business last year -- the bank, a unit of the Amsterdam-based ING Group (ING), doubled the number of customers in the U.S., to more than 3.4 million in 2005.

CONDITIONS APPLY. Citibank's new e-Savings account, part of a rebranded Internet portal known as Citibank Direct, has a higher yield than ING's 3.8% APY, although it lags behind the 4.8% APY at HSBC Direct, a unit of London-based HSBC Group (HBC), another big competitor also aggressively seeking new online savings accounts. HSBC currently offers the highest rate in the U.S., according to, while, gives the second-highest, with an APY of 4.66%.

The Citibank e-Savings account is a bit trickier than those of its peers, says Laura Bruce, an analyst at in North Palm Beach, Fla. "You see that flashy 4.5% savings account, but you could get tripped up on how the checking account works," she says. That's because, unlike HSBC and ING, Citibank requires that you attach an EZ checking account to the savings account. To maintain free checking, you need to make two electronic bill payments each month or have direct deposit into the account, she says. Adds Bruce: "If you don't do that, you'll have to keep a $1,500 minimum to avoid fees."

Citibank has 900 branches in 10 U.S. states, which makes its branch network relatively small for a global company. Yet 40% of the customers who have opened accounts on live outside of that network. The e-Savings account offers "a great way to go out there and get deposits without having branches," Bruce says. "They will reach a lot of people this way."

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