>Is Citibank Going Bust by Offering a 3.5% APY!

>I recently saw an offer for a high yield savings account by Citibank paying 3.5%. Readers of this site will know I have written a number of posts reviewing high yields savings accounts, which are probably the only investment vehicles offering non-negative rates of return in current market conditions. My preferred choices, based on facts and personal experiences, are ING Direct and HSBC Direct. They are both global banks with solid balance sheets. Their interest rates are competitive, but not ultra high when compared to high yield saving account market averages.

So when Citibank, which has suffered huge losses and write downs of late, starts offering much higher than average market rates (currently around 2%), then it raises a number of red flags for me. As an example, think of some recent banks that offered much above market rates for their savings accounts shortly before their demise; Washington Mutual (WaMu) & Indy Mac for example. Both went bust and were taken over because they could not meet minimum capital requirements. Is Citi (C) going to follow the same route? When banks start offering such high rates it signals to me that they are getting desperate for cash and are willing to pay a large premium (interest rate) to get it. Companies that are perceived to be running out of cash in times like this get put on the chopping block or taken over. Even though the savings accounts are FDIC insured, beware putting more than the insured limit into accounts like this.

My suggestion is that when you see rates that are so much higher than the market average, no matter the institutional name behind it, then be wary and don’t go chasing these teaser or inflated rates. Go with the well known names –ING and HSBC or other sound banks, that offer realistic but competitive savings rates. You don’t want the hassle of dealing with a bank that gets the dreaded FDIC intervention.

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1 thought on “>Is Citibank Going Bust by Offering a 3.5% APY!

  1. Pingback: Stock Market Volatility – Now is NOT the Time to Sell | Saving to Invest

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