What Is CASA?

By | October 24, 2017

CASA stands for Current and Savings Account. Here’s all you need to know about CASA in a nutshell.

What Is CASA?

What is CASA?

CASA is the acronym for Current and Savings account, which is commonly used in the banking industry across West Asia and South-East Asia. Banks usually receive the majority of their funds from various kinds of deposit schemes like current accounts, Savings Accounts and term deposits.

CASA deposit is the amount of money that gets deposited in the Current and Savings Accounts of bank customers. The bank pays very low or no interest for deposits in current accounts whereas the deposits in Savings Accounts receives slightly higher interest rates. It is the cheapest and major source of funds for banks. This fund source is in turn used to distribute Home LoansPersonal Loans etc.

As you already know, banks offer two types of accounts to its customers. These accounts can be classified into term deposits and non-term deposits. An example of a term deposit is a Fixed Deposit or Recurring Deposit account, while an example for a non-term deposit is a Current or Savings Account.

Additional Reading: The Difference Between A Current Account And Savings Account

While a term deposit is valid for a fixed period of time, interest is generated on these funds provided you don’t withdraw the money during the term that it is locked in for.

On the other hand, non-term deposit accounts are used for daily operations and are valid as long as the customer wants them to be kept active or open. These accounts have relatively lower interest rates on them, which depend on the terms and conditions set by each bank.

Additional Reading: Ultimate Cheat Sheet: One-Minute Guide To Understanding CASA

What does the CASA ratio mean for banks?

The CASA ratio is the ratio of deposits in the current and Savings Account of a bank to the total deposits of the bank. If the CASA ratio is higher then it means that a higher portion of the deposits have come from current and savings deposits.

As mentioned earlier, it is a cheaper source of funding. If the CASA ratios are higher it indicates that the net interest margin (difference between total interest income and expenditure and is shown as a percentage of average earning assets) or the operating efficiency of the bank is good.

Financial experts also look at the CASA ratio to understand a bank’s financial health, since it reflects the bank’s capacity to raise money with lower borrowing costs. Hence, the higher the CASA ratio the better the net interest margin, which means better operating efficiency.

The net interest margin is the difference between total interest income and expenditure and is shown as a percentage of average earning assets. Therefore, higher income from CASA will improve the net interest margin since the cost of this fund is relatively lower. For instance, most banks lend at over 10%, whereas the rate of interest that they pay on Savings Accounts is about 4% or so.

Now that you know how CASA works, don’t let your money sit idle for too long in a Savings Account. Invest it in Mutual Funds for higher returns.

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