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e-Savings Account Impact to Citigroup

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According to this CNN article, Citigroup's new high-yield online savings account called e-Savings account has raised $3 billion in deposits for the first two months. The high yield on this savings account (currently 4.75%) may be good for customers, but investors are worried that it'll eat into profits. $1 billion of the $3 billion in deposits were from current Citibank customers. An analyst estimated that these new deposits cost the company $40 million.

Citigroup CEO, however, seems to be willing to look beyond these costs to the goal of being a leader in online banking. He states that "It will become the dominant way of doing banking and with our better nationwide brand... we have the ability to go for it in ways others don't have."

A familar name and with local branches, Citibank's e-Savings account will be hard to beat. This should force smaller banks like EmigrantDirect to be competitive. Although no one seems to be in any hurry to reach 5% on savings accounts.

One issue with big banks like Citibank will always be customer service. They don't always follow through on their deals. The $200 Citibank checking account and credit card deal may be one. Several have reported having trouble in this deal.
Comments
Mario
Mario (anonymous)   |     |   Comment #1
According to other articles, online banking is supposedly very profitable for banks even with the higher rate. This one seems to suggest Citibank is making a loss on it. So which is true?
Mario
Mario (anonymous)   |     |   Comment #2
Okay, so re-reading it I suppose the conclusion is that Citibank is having a loss because it's B&M customers move to higher yield online savings. But, these customers don't get the B&M customer service for these deposits, so it shouldn't be considered a loss, at least in the long run (when Citibank can downsize the B&M operations).
Banking Guy
Banking Guy (anonymous)   |     |   Comment #3
I suppose a B&M bank may not be helped initially by opening an online division. They still have all the overhead of their branches. However, if they want to grow, an online unit with high rates may not be any more costly than new branches with low rates.

So I think you're right. In the long term, they'll need fewer branches and fewer employees. Then they'll be able to better profit from the online unit. And if online banking becomes the dominant form of banking, they may have the lead compared to banks like Bank of America.
Matthew
Matthew (anonymous)   |     |   Comment #4
I'll bet dollars to donuts that Citibank's rates fall by the wayside in the 9-12 month timeframe. Once they've built up a significant customer base, rates will slip back into the middle of the pack and they'll try to coast by on their reputation. It's a good strategy for them, but not for rate chasers.

Matthew @ Crazy Money
procol
procol (anonymous)   |     |   Comment #5
Citi reneged on a deal I did with them after a 7 month waiting period, when they then claimed I was a FORMER customer and not elegible.

They said nothing when I opened the account or after.

This was bogus. They played hardball and would not pay up.

I have a life of loan rate on a CC debt with them at 1.99% as small revenge.
Anonymous
Anonymous   |     |   Comment #6
I don't trust Citibank at all. They just burned me on a credit card deal's promise of low interest on balance transfers (0% remains for 12 months, but what it didn't say anywhere on the offer--only in the fine print of the agreement--is that you can only make transfers on that rate for 6 months).

I'd go with another e-Savings account. Citibank cannot be trusted on their deals.