Verdict – A great choice. Your credit card collateral is put into an 18 month CD with a high interest rate (4% as of Feb 1, 2010), which can more than offset the entire annual fee. Also, you may be able transition over to an unsecured Citi Dividend Platinum card after 18 months.

Citi’s Secured card is the best choice if you do not care about rewards and plan to deposit a large amount of money upfront.

The credit line equals the amount you deposit into an 18 month CD, and ranges from $200 to $5,000. However, once you put money into a CD, it is stuck there unless you are willing to pay penalties for early withdrawal. This is attractive because most other banks do not let you earn interest on your upfront collateral deposit for secured credit cards.

The annual fee is low, compared with other secured cards, as is the APR. We’d also strongly recommend considering the Public Savings Bank Secured card, if you plan on depositing $1,500 or less. Despite the $79 initial processing fee, this card has no annual fee, and a lower APR with 0% intro APR for 6 months, so if you plan on holding the card for a few years or running up a balance it may be the best choice.

Pros (compared with other secured cards):
A reasonable annual fee. Earn interest on your collateral. The Citi name is also a bonus, because you may be able to switch to an unsecured Citi card after 18 months, and you have access to a wide network of ATMs.

Cons (compared with other secured cards):
Slightly higher annual fee than some other cards. 20 day grace period compared to 25 days for most other cards.

Typical (compared with other secured cards):
Getting 100% of what you deposit as your line of credit. A $200-$5,000 credit line range.

What is a secured credit card?
Almost anyone can qualify for a secured credit card, or alternatively for a pre-paid debit card, regardless of credit history. What’s the difference?

A secured card requires a one time upfront deposit, then behaves like a normal credit card. This money is “gone” until you close the account at some future date, and is collateral for your future spending. To be clear, money you spend in the first month must be paid back at the end of the month, despite the faact that you have already deposited collateral. The size of the upfront deposit determines the size of the line of credit – typically a $500 deposit will earn you less than a $500 credit line.

On the other hand, a pre-paid debit card is a stored value card, where money deposited into the account can be spent.

Pros and Cons of a Secured Credit Card versus a Pre-Paid Debit Card
The advantage of a secured credit card is that they help you build (or damage) your credit by reporting to the 3 credit bureaus. Some pre-paid debit cards claim to do this, but this is difficult to fathom, given that credit agencies look at the ratio of your balance versus available credit, and pre-paid debit cards do not have a credit line.

The advantage of a pre-paid debit card is that it does not require a permanent deposit to act as collateral, and can be more anonymous. However, fees are generally much higher. Some of the cards promoted most heavily on the internet will cost you hundreds of dollars a year in hidden fees. Some typical examples include $2.50 for ATM transactions, $5-10 per month, $0.50 to check your balance at an ATM machine, and $15 to shut down your card. Be careful!