By Jonathan Stempel
Citigroup Inc. has set up an Internet bank that offers higher interest
rates, as part of its plan to attract more online customers and
reverse a decline in consumer banking profit.
Citibank Direct is offering a 4.5 percent yield on savings accounts,
with no minimum balances required, and in some cases no monthly
fees. Customers, however, must open linked checking accounts to get
The largest U.S. bank is hoping to better compete with ING Group NV's
ING Direct and HSBC Holdings Plc's HSBC Direct in offering
higher-yielding online accounts amid growing competition industrywide
"They are late to the game, but with bank interest rates still
relatively low, this offers customers a way to achieve decent returns
and still have banking flexibility," said Jacob Jegher, a senior
banking analyst at Celent Communications LLC.
The online deposit market is growing. ING Direct said it added its
15-millionth customer in January, and HSBC Direct said it was recently
adding $75 million of deposits a week.
HSBC Direct offers a 4.8 percent yield on some savings accounts, while ING
Direct is offering 3.8 percent, according to their Web sites.
Capital One Financial Corp., the credit card issuer making a big
banking push by acquiring North Fork Bancorp Inc. and Hibernia Corp.,
touts a 4.25 percent savings account yield. Emigrant Direct offers 4.5
In contrast, traditional savings accounts in markets such as New York
and California often yield less than 1 percent, according to
Bankrate.com. The average yield on interest-bearing checking accounts
is 1.23 percent.
Many banks use online banking to add new customers, and increase
business with existing customers who prefer to bank through more than
Existing Citibank checking customers may apply for Citibank Direct
online. The maximum online account balance is $250,000.
New York-based Citigroup's online push comes as the bank plans to open
as many as 200 branches worldwide and 100 in the United States this
year. The latter number is three times as many as Citigroup opened
from 2002 to 2005.
Last year, profit from Citigroup's consumer banking unit fell 9
percent to $10.9 billion, and in the United States fell 10 percent to
Citigroup is advertising Citibank Direct on Yahoo Inc. home Web page.
The product differs from Citi f/i, an online portal that the bank shut
down in 2001 after two years, because customers may also visit
Citigroup also plans this year to start a mobile phone banking service.
Other big banks have also struggled with Internet banking. Bank One
Corp., now part of JPMorgan Chase & Co., shut down its
WingspanBank.com after two years, also in 2001.
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