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What is CASA?
CASA stands for Current Account Saving Account. This is a unique feature which banks offer to their customers to make them keep their money in their banks. The account combines the benefits of savings account and checking accounts.
The account pays negligible or no interest on the current account and an above-average return on the savings accounts. CASA is mostly popular in the West and Southeast Asia.
CASA is a non-term deposit account which means that it can be used for everyday banking requirements of the customer.
How does it work?
CASA combines both the features of a current account and a savings account and the funds can be utilized any time. It provides flexibility to the customers and thus has a lower interest rate than a term deposit. CASA is a cheaper way for the banks to raise money than issuing term deposits which offers higher interest rates to customers. Financial institutions also encourage use of CASA as it helps generate a higher profit margin.
CASA Ratio
CASA Ratio is the ratio of deposits in current account and savings account to the total deposits of the bank. A higher CASA ratio means that the bank has a higher share of deposits in current and savings accounts. A higher CASA ratio also indicates a better operating efficiency of the bank. In India, this ratio is used as one of the metrics to determine the profitability of the banks.
CASA Ration = CASA Deposit/Total deposits
Current Account vs Savings account
A current account does not earn any interest but they don’t have any restrictions on withdrawal or deposits. Savings account does not have any restrictions on deposits but limits the number of times a person can withdraw money. A savings account pays interest but it is very low. This is done to encourage savings.