Citibank Targets Net-Based Savers

Citibank on Wednesday launched a new online, high-yield savings account to compete with similar offerings from other successful Internet banks.

Called Citibank Direct, the account will carry an introductory rate of 4.5%. The accounts will be available to consumers nationwide and will require no minimum balance and carry no fees. But customers who sign up for the high-rate savings accounts will be required to open a linked checking account.

Citibank is the retail arm of Citigroup Inc., the nation’s largest financial institution, which is headquartered in New York.

Catherine Palmieri, managing director of Citibank.com, said that the new account was aimed at attracting new customers to Citibank’s online bank.

And because competitors such as ING Direct and HSBC Direct have popularized the word “direct” for their high-yield offerings, Citibank is adopting the word too.

“It’s taking what we already have built ... and trying to market it in a way that we can capture other customers,” Palmieri said.

Citibank Direct account holders will be able to access their money at any of Citi’s 900 branches and more than 3,000 automated teller machines, the announcement said.

The accounts also will be available to existing customers of Citibank.com, Palmieri said.

The new account faces some tough competition.

HSBC Bank USA, a unit of London-based HSBC Holdings, has been offering a high-rate account online since late last year. It is offering 4.8% on its no-fee, no-minimum online accounts.

Netherlands-based ING Group’s ING Direct, which has operated online accounts since September 2000, offers 3.8%.

Even smaller institutions are getting into the act. New York-based Emigrant Bank’s online banking division, EmigrantDirect, is offering a high-yield account with 4.5% interest. Emigrant said the account had attracted more than 225,000 customers and $6 billion in deposits.

What’s more, the average annualized yield on money market mutual funds now is 4.08% and climbing, as the Federal Reserve continues to boost short-term interest rates.

George Tubin, senior analyst with TowerGroup, a research firm based in Needham, Mass., said the high-yield savings accounts were designed to draw online customers, who are more profitable because they are cheaper to serve than customers who come into branches.