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Current Account Savings Account (CASA)

Current Account Savings Account (CASA)

What Is a Current Account Savings Account (CASA)?

A current account savings account (CASA) is pointed toward joining the highlights of savings and checking accounts to tempt customers to keep their money in the bank. It pays exceptionally low or no interest on the current account and a better than expected return on the savings portion. CASA is most regularly utilized in West and Southeast Asia, however the CASA structure is accessible around the world.

A CASA account pays no interest — or at times, low interest — on the current account and a better than expected return on the savings portion.

The CASA is a non-term deposit, meaning it is utilized for the ordinary banking and savings needs of the consumer. This type of account doesn't have a specific maturity or expiration date, so it is legitimate however long the account holder needs it to stay open. This is rather than 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 might be used out of the blue. It joins both the checking and savings capabilities into one. Due to this flexibility, a CASA has a lower interest rate than a term deposit, in which money is set to the side to be immaculate for a specific time frame period with a guaranteed interest rate.

Most banks offer CASAs to their customers for free. At times, there might be a small fee, contingent upon certain base or average balance requirements. These types of accounts endeavor to limit the disintermediation that happens when bank deposit interest is lower than other accessible short-term investments.

A CASA will in general be a less expensive manner for a bank to fund-raise than giving term deposits, for example, certificates of deposit (CDs), which offer higher interest rates to the customers.

Financial institutions empower the utilization of a CASA on the grounds that it generates a higher profit margin. Since the interest paid on the CASA deposit is lower than on a term deposit, the bank's net interest income (NII) is higher. Hence, CASAs can be a less expensive 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. Nonetheless, in view of the uncertainty connecting with when a depositor will pull out funds, CASA funds ought not be used by a bank for long-term financing.

Current Account versus Savings Account

As indicated over, the current account portion of the CASA earns no interest. There are generally no restrictions on deposits or withdrawals. The savings account portion has no limitations on the number of deposits an account holder can make. Nonetheless, it commonly has limitations on the number of withdrawals a person can make. This is put in place to urge account holders to save. The maximum number of withdrawals permitted fluctuates by institution.

Current Account Savings Account Ratio

The percentage of total bank deposits that are in a CASA is an important measurement to determine the profitability of a bank. The CASA ratio demonstrates the amount of a bank's total deposits are in both current and savings accounts.

The ratio can be calculated utilizing the following formula:

  • CASA Ratio = CASA Deposits \u00f7 Total Deposits

A higher ratio means a bigger portion of a bank's deposits are in current and savings accounts, as opposed to term deposit accounts. This is beneficial to a bank since it gets money at a lower cost. Subsequently, the CASA ratio is an indicator of the expense to raise funds and, consequently, is an impression of a bank's profitability or probability of generating profit.

Special Considerations

The presence of the CASA should be visible as a product of especially competitive or saturated markets, in which financial service companies need to make a constant flow of new products and elements that separate them among various suppliers. The way things are, not many individuals concur that any market has one best bank. Internationally, a great many people accept all banks and financial institutions are generally something very similar.

Features

  • A CASA consolidates 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 prevail upon customers.
  • Current Account Savings Accounts (CASA) are a type of non-term deposit account.
  • A CASA has a lower interest rate than term deposits, like a certificate of deposit, and is consequently a less expensive source of funds for the financial institution.