What is a Current Account Savings Account (CASA)?
A current account savings account (CASA) is aimed at combining the features of savings and checking accounts to entice customers to keep their money in the bank. It pays very low or no interest on the current account and an above-average return on the savings portion. CASA is most commonly used in West and Southeast Asia, though the CASA structure is available globally.
- Current Account Savings Accounts (CASA) are a type of non-term deposit account.
- A CASA has a lower interest rate than term deposits, such as a certificate of deposit (CD), and is therefore a cheaper source of funds for the financial institution.
- A CASA combines the benefits of both a checking account and savings account, and it is indicative of a competitive market in which banks need to offer new products to win over customers.
How a Current Account Savings Account (CASA) Works
A CASA operates like a normal bank account in which funds may be utilized at any time. Because of this flexibility, a CASA has a lower interest rate than a term deposit, in which money is set aside to be untouched for a specific time period with a guaranteed interest rate. Demand deposits, such as a CASA, let customers exchange a higher rate of interest for higher liquidity through immediate access to their funds. However, because of the uncertainty relating to when a depositor will withdraw funds, CASA funds should not be utilized by a bank for long-term financing.
A CASA is offered to a customer for free or for a small fee, depending on certain minimum or average balance requirements. These types of accounts attempt to limit the disintermediation that occurs when bank deposit interest is lower than other available short-term investments. A CASA tends to be a cheaper way for a bank to raise money than issuing term deposits, such as certificates of deposit (CDs), which offer higher interest rates to the customers.
Financial institutions encourage the use of a CASA because it generates a higher profit margin. Because the interest paid on the CASA deposit is lower than on a term deposit, the bank’s net interest income (NII) is higher. Thus, CASAs can be a cheaper source of funding for banks.
Current Account Savings Account Ratio
The percentage of total bank deposits that are in a CASA is an important metric to determine the profitability of a bank. The CASA ratio indicates how much of a bank’s total deposits are in both current and savings accounts. A higher ratio means a larger portion of a bank’s deposits are in current and savings accounts, rather than term deposit accounts. This is beneficial to a bank because it's getting money at a lower cost. Therefore, the CASA ratio is an indicator of the expense to raise funds and, therefore, is a reflection of a bank’s profitability or likelihood of generating profit.
The existence of the CASA can be seen as a product of especially competitive or saturated markets, in which financial service companies have to create a steady stream of new products and features that differentiate them among different providers. As it stands, very few people agree that any market has one best bank. Globally, a large share of individuals believe all banks and financial institutions are roughly the same.