What is a 'Current Account, Savings Account (CASA)'

A current account savings account (CASA) is an attempt to combine savings and checking accounts to entice customers to keep their money in the bank by paying no or very low interest on the current account while the savings portion pays an above-average return. They are offered free or for a fee depending on minimum or average balance requirements, and are an attempt to limit the disintermediation that occurs when bank-deposit interest is lower than other available short-term investments. These deposits tend to be cheaper than the bank issuing certificates of deposit (CDs) and are also considered more dependable.

BREAKING DOWN 'Current Account, Savings Account (CASA)'

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 as the bank does not have a guarantee all the funds are available to loan for a specific period of time. Demand deposits like a CASA exchange a higher rate of interest for higher liquidity and access to funds. The amount of money deposit into a CASA is an important metric to determine the profitability of a bank.

Use of a CASA is only functional under the assumption that depositors will not withdraw all funds in the very near future. Likewise, because of the uncertainty relating to when a depositor will withdraw funds, a CASA is not to be utilized by a bank for long-term financing.

How Banks Utilize a CASA

Financial institutions encourage the use of a CASA as it results in a higher profit margin for the bank. Because the interest paid on the deposits is lower when compared to a term deposit, the bank’s net interest income (NII) is greater. Thus, a CASA is a cheaper source of funding for financial institutions.

CASA Ratio

The CASA ratio indicates how much of a bank’s total deposits are in current and savings accounts. A higher ratio means a larger portion of a bank’s total deposits are in current and savings accounts. For a bank, this is favorable as the institution is getting money at low cost. Therefore, the CASA ratio is a reflection of a bank’s profitability or likelihood of generating profit as it is an indicator of the expense to raise funds.

Global Use of CASA

The use of a CASA is mostly prevalent in certain parts of Asia. The Reserve Bank of India determines the interest rates paid on a CASA in India. Approximately 48% of the funds held by the State Bank of India are deposits held in a CASA. The highest ratio - 52% of deposits being held in a CASA – is found at the HDFC Bank in India.

RELATED TERMS
  1. Bank Deposits

    Money placed into a banking institution for safekeeping. Bank ...
  2. Call Deposit Account

    A bank account for investment funds that offers the advantages ...
  3. Deposit Interest Rate

    The deposit interest rate is the interest rate paid to deposit ...
  4. Brokered Deposit

    A large-denomination bank deposit that is sold by a bank to a ...
  5. Demand Deposit

    Funds held in an account from which deposited funds can be withdrawn ...
  6. Deposit In Transit

    A deposit in transit is money that has been received by a company ...
Related Articles
  1. Personal Finance

    Where To Put Your Cash: Call Deposit Vs Time Deposit Accounts

    Time deposit accounts and call deposit accounts allow customers to earn higher interest in exchange for less access to their cash.
  2. Investing

    What is a Bank?

    A bank is a financial institution licensed to receive deposits or issue new securities to the public.
  3. Investing

    Explaining Term Deposits

    A term deposit (more often called a certificate of deposit or CD) is a deposit account that is made for a specific period of time.
  4. Personal Finance

    Understanding Savings Accounts

    A deposit account held at a bank or other financial institution that provides principal security and a modest interest rate.
  5. Personal Finance

    Handling High-Yield Savings Accounts

    Is this the savings route for you? Read on to find out what these accounts have to offer.
  6. Personal Finance

    4 Savings Accounts for Investors

    Curious about the best saving accounts and which ones suit investors?
  7. Personal Finance

    10 Bank Promotions That Pay You To Open An Account

    Find out which banks are running cash promotions this summer.
  8. Investing

    How Time Deposits Work

    A time deposit is an interest-bearing bank deposit that has a specific maturity date.
RELATED FAQS
  1. What is the difference between a demand deposit and a term deposit?

    Understand the meaning of demand deposits and term deposits, and learn about the major differences between these two types ... Read Answer >>
  2. How liquid are money market accounts?

    Understand the characteristics that distinguish money market accounts from checking, savings account and money market funds ... Read Answer >>
  3. What proportion of my income should I put into my demand deposit account?

    Find out how much money to keep in your liquid demand deposit accounts, such as checking or savings accounts, and discover ... Read Answer >>
  4. How does the deposit multiplier affect a bank's profitability?

    Find out how a deposit multiplier affects bank profitability, how it increases the supply of money in the economy and why ... Read Answer >>
Trading Center