Current Account Savings Account (CASA)

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.

A CASA account pays no interest — or in some cases, low interest — on the current account and an above-average return on the savings portion.

The CASA is a non-term deposit, meaning it is used for the everyday banking and savings needs of the consumer. This type of account does not have a specific maturity or expiration date, so it is valid for as long as the account holder needs it to remain open. This is in contrast to a term deposit, which is open for a certain period of time. After the maturity date, the bank or institution pays a certain amount of interest on the principal balance.

How Current Account Savings Accounts (CASA) Work

A CASA operates like a normal bank account in which funds may be utilized at any time. It combines both the checking and savings functions into one. 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.

Most banks offer CASAs to their customers for free. In some cases, there may be 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.

Demand deposits like CASAs let customers exchange a higher rate of interest for higher liquidity by giving them 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.

Current Account vs. Savings Account

As noted above, the current account portion of the CASA does not earn any interest. There are generally no limits on deposits or withdrawals. The savings account portion does not have any restrictions on the number of deposits an account holder can make. However, it typically has restrictions on the number of withdrawals a person can make. This is put in place in order to encourage account holders to save. The maximum number of withdrawals permitted varies by institution.

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.

The ratio can be calculated using the following formula:

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 gets 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.

Special Considerations

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, most people believe all banks and financial institutions are roughly the same.