NEW YORK (CNNMoney.com) - Just two months after Citigroup jumped into Internet banking, the company's high-yield online savings account is rocking, Citigroup CEO Charles Prince said Thursday.

Speaking at an industry conference in New York, Prince said the bank's new online savings account attracted $3 billion in deposits since the online bank launched in late March, with two-thirds of that "new money to the institution," the equivalent of opening 23 new branches.

"In the first ten days [after the launch], we had ten times the volume we predicted," he said. "Only a few weeks after the launch, we raised $3 billion in deposits."

Prince said while the company is opening new brick-and-mortar branches "for the first time in a long time," the Internet bank is one of its latest initiatives in Citigroup's (Research) quest to attract new customers.

Citibank Direct launched in late March, offering Citibank customers a 4.75 percent annual percentage yield on savings - making it one of the highest paying online banking sites available to consumers.

Competitor INGDirect - which pioneered the online savings account model - currently pays 4.25 percent while EmigrantDirect - the fast-growing online savings arm of New York-based Emigrant Savings Bank - offers customers a 4.65 percent annual percentage yield.

But unlike ING Direct and EmigrantDirect, Citigroup's entry into the online saving account market was viewed with some concern by analysts who feared it could wind up cannibalizing profits from the company's existing branch network.

Bart Narter, a senior analyst at research advisory firm Celent LLC, said the company, in its efforts to "land both hot money and the primary banking relationship" was seeing many of its existing customers move their money from lower yielding instruments to the high-yielding online accounts. And that was raising Citi's cost of funds, he added.

Narter said that while two-thirds of their new deposits may be new money, that still means the company cannibalized $1 billion from other parts of its retail banking business. And given the difference between the high online rate and the far lower rates of its traditional accounts, he estimated the new deposits cost the company $40 million to achieve.

"Even for Citibank that's a lot of money," Narter said. "On the plus side, in another month, the growth of this [online bank] would rank it among the top 150 banks. They can grow this bank quickly, but it's costing them real money to do it."

But Prince, speaking at the conference, dismissed the criticism adding "we're better positioned for the ultimate move to online banking. 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."

Prince said the bank was looking to create "a full relationship with customers" by insisting that online banking customers also open a separate checking account at the company - a requirement other online banks don't have, although ING Direct has expressed interest in adding checking accounts.

Online banking is hardly new territory. Recent studies have indicated that more and more consumers are turning to the Internet to meet their banking needs. A report by Javelin Strategy & Research indicated that online banking was particularly popular with younger users, age 18-24.

Meanwhile, high-yield Internet savings accounts have become increasingly popular in recent days. Propelled by the success of ING Direct, banks such as HSBC (Research) and Capital One (Research) have also opened high-yield savings accounts.

Citigroup last year began testing an online savings account with a yield of 3.25 percent for customers who had a checking account with Citibank.

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