Major banks are offering high-yield savings accounts. How does 3.25% from Citibank or HSBC sound?

NOW THAT CONSUMERS HAVE gotten used to getting gadgets and gift cards for opening a bank account, some banks are trying out a new perk: a high-yield savings account.

Over the past month, Citigroup's (C) Citibank has quietly been testing a new online savings option which, with an annual percentage yield (APY) at 3.25%, is among the highest savings yields offered by both online and traditional retail banks. The e-Savings account has no fees or minimum deposit requirements, but comes with one catch: It is only available to consumers who have a Citibank checking account. "It's Citibank's new iPod," says George Tubin, senior analyst with the Tower Group, a Needham, Mass.-based financial-services research and consulting firm. "It's a new way to try to incent customers to move their money to a new bank."

But don't rush to your local Citibank branch just yet: The offer is currently available only in limited markets, according to a Citibank spokesman. He did not specify which ones or give a timeframe when the bank may be rolling the product out nationwide. (To see if you qualify for the promotion, click here or call 1-800-374-9500.)

Whether Citibank deems the test successful depends on many factors, including the types of customers they attract and the amount of money they pour into the accounts, according to Tubin. If they find that people keep calling the bank every day of the week, for example, and it ends up costing the bank a lot of money to serve the customers, they may discontinue the offer. However, Tubin notes, "if Citi finds they're successful and they roll it out very strongly and aggressively, you'll see some of the other banks follow very quickly."

Meanwhile, HSBC bank, a unit of HSBC Holdings (HBC), has already officially rolled out a nationally available online savings account with a 3.25% APY. Unlike Citibank, HSBC's online savings account can be linked to any checking account and does not require you to have or open a checking account with HSBC.

The biggest advantage of both accounts is that unlike online banks like ING Direct, which allow you to access the funds only by making a transfer to an existing checking account that may take a few days, both Citibank and HSBC online accounts are also accessible through the banks' ATMs. (HSBC has branches in California, Delaware, Florida, New York, New Jersey, Oregon, Pennsylvania, Washington State and Washington, D.C. Citibank has branches in California, Nevada, Illinois, Maryland, Virginia, Washington, D.C., Florida, New Jersey, Connecticut and New York.)

In a recent survey conducted by Jupiter Research, nearly a third (32%) of the respondents said they believed their money was more secure if the bank had a physical presence. (Even though the fact is that online banks carry the same FDIC insurance as traditional bricks-and-mortar institutions.)

"A lot of people are still trying to get used to the fact that the online institutions are a viable option, especially when it comes to parking their money," says Randy Rosen, manager of deposit research at Informa Research Services.

Even if other traditional banks don't follow their example, Rosen considers the move by HSBC and Citibank to enter the high-yield online savings market a positive development as online banks will now have new, strong competition. Just days ago, EmigrantDirect, the online branch of New York-based Emigrant Savings Bank, hiked its yield to 3.5% from 3.25%, keeping its lead in the high-yield race. ING Direct, a unit of ING Groep NV (ING), upped its yield last week to 3.15% from 3%. (That's nothing to sneeze at: Consider that the average money-market fund now has an annualized yield of 2.68%, according to iMoneyNet.com, while short-term bond funds have eked out just 1.95% over the past year, according to investment-research firm Lipper.)

For more online savings options, see the table below. We've selected online savings or money-market accounts with no minimum deposit requirements. More options available at Bankrate.com.

Bank APY Minimum Deposit Check Writing Additional Requirements
EmigrantDirect 3.50% $1 No
UFB Direct 3.40% $1 No
HSBC Bank USA 3.25% $1 Yes Free HSBC ATM withdrawals and deposits.
Citibank e-Savings
(Promotional offer available
in select markets only)
3.25% $1* No Must have a Citibank checking account.
Capital One Bank 3.15% $1 No
ING Direct 3.15% $1 No
Sources: Bankrate.com; Citibank.
Data as of 07/25/2005.
* Checking account minimum requirements apply unless you have direct deposit.