What Is a Current Account Savings Account (CASA)?
A current account savings account (CASA), offered by some banks, combines the functions of a checking account and a savings account. The customer gets little or no interest on the current account money that is used routinely to pay bills but is paid interest on the savings portion.
Although it is available globally, CASA is most commonly used in Western Asia and Southeast Asia,
Key Takeaways
- Current account savings accounts (CASA) are a type of non-term deposit account.
- A CASA pays a lower interest rate than term deposits, such as certificates of deposit, and is thus a cheaper source of income for the financial institution.
- For the consumer, a CASA can be a way to build savings over time.
How Current Account Savings Accounts (CASAs) Work
A CASA is a non-term deposit, meaning it is used for the everyday banking and savings needs of the consumer and does not have a specific maturity or expiration date. It is valid for as long as the account holder wants it to remain open.
This is in contrast to a term deposit, such as a certificate of deposit (CD), which commits the customer's money for a certain period of time. On the maturity date, the bank or institution returns the money with the agreed interest payment.
How CASAs Benefit Banks
A CASA works like a checking account. The money deposited can be withdrawn or paid out at any time. The interest on the savings portion, meanwhile, acts as an incentive to keep some money on deposit and add to it over time.
Most banks offer CASAs to their customers for free or for a small fee, depending on minimum or average balance requirements.
A CASAtends 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. Because the interest paid on the CASA depositis lower than on a term deposit, the bank’s net interest income (NII) is higher. Thus, CASAs area cheaper source of funding for banks.
Their main drawback is uncertainty. In the case of on-demand deposits, a bank can't be sure how much money it will actually have available to lend.
How CASAs Benefit Consumers
The CASA is designed to encourage regular saving by making it easier and keeping it flexible.
By using a CASA, customers forego a higher rate of interest in return for better liquidity. They're not tying up their money for a period of months.
Consumers and small businesses also get to build a working relationship over time with a bank.
Current Account vs. Savings Account
As noted above, the current account portion of the CASA pays little or no interest. There are generally no limits on deposits or withdrawals.
The savings account portion typically has restrictions on the number of withdrawals a person can make. These vary by bank.
CASA Ratio
In regions where CASA accounts are common, the percentage of total bank deposits that are in a CASA is an important metric to determine the bank's liquidity. The CASA ratio indicates how much of a bank’s total deposits are in both current and savings accounts.
A higher CASA ratio indicates that a bank has a higher proportion of stable deposits available for lending, according to Navi, a financial services firm based in India.
The ratio can be calculated using the following formula:
CASA Ratio = CASA Deposits ÷ Total Deposits
What's the Difference Between a CASA Account and a Savings Account?
A portion of a CASA account is a savings account, and the customer receives interest on the deposit. The interest will be slightly lower than it might be for a regular savings account.
By combining checking and savings functions in one account, the CASA is designed to make it easier for the customer to save week after week.
A savings account does that, too. However, the consumer is more likely to leave a savings account untouched. CASA savings are slightly easier to access.
That difference means that the bank can't rely as much on the CASA deposits staying intact from week to week. They are a bit less stable for the bank's lending purposes, and thus earn less interest.
What's the Difference Between a CASA Account and a Checking Account?
A portion of the CASA, the "current account" portion, is a checking account. It works like any checking account. The customer can withdraw cash and write checks against the balance. The bank will issue a debit card for the account, and the customer will be able to use its online banking portal.
This portion of the CASA earns no interest.
Do CASA Accounts Pay a Competitive Interest Rate?
Interest rates vary from one bank to the next but a CASA account will usually pay a lower interest rate than any other offering at the same bank. The difference is the time commitment.
A CASA essentially has no time commitment. The customer can use that money anytime.
In order to get a better interest rate, you have to promise to keep that money in the bank for a certain period of time. The longer the time commitment, the higher the interest rate.
The Bottom Line
CASA accounts are offered to consumers are small businesses as a way to maintain maximum flexibility while still earning a little bit of interest on the money they save.
They are essentially a combination of a checking account and a savings account.
In terms of function, they aren't much different from separate but linked checking and savings accounts that are common in the U.S. They are designed to encourage consumers to save a bit of their income from week to week, and to provide the bank with a steady stream of money to reinvest at higher rates of return.
I am an expert and enthusiast based assistant. I have access to a wide range of information and can provide assistance on various topics. I can help answer questions, provide information, and engage in detailed discussions. I strive to provide reliable and accurate information by using search result snippets as evidence for the claims I make. If you have any questions or need assistance, feel free to ask!
Now, let's dive into the concepts mentioned in the article "What Is a Current Account Savings Account (CASA)?"
Current Account Savings Account (CASA)
A Current Account Savings Account (CASA) is a type of non-term deposit account offered by some banks. It combines the functions of a checking account and a savings account. The customer receives little or no interest on the money in the current account, which is typically used for routine bill payments. However, the customer does earn interest on the savings portion of the account .
CASA accounts are available globally, but they are most commonly used in Western Asia and Southeast Asia.
How CASAs Work
A CASA is a non-term deposit, meaning it does not have a specific maturity or expiration date. It is valid for as long as the account holder wants it to remain open. Unlike term deposits, such as certificates of deposit (CDs), which commit the customer's money for a certain period of time, a CASA allows the customer to withdraw or pay out the deposited money at any time .
Benefits of CASAs for Banks
For banks, CASAs serve as a cheaper source of funding compared to issuing term deposits like CDs. The interest paid on CASA deposits is lower than on term deposits, which allows banks to have higher net interest income (NII). However, CASAs also come with the drawback of uncertainty for banks, as they cannot be sure how much money will be available for lending due to the on-demand nature of CASA deposits.
Benefits of CASAs for Consumers
CASAs are designed to encourage regular saving by providing flexibility and ease of access to funds. By using a CASA, customers can build savings over time without tying up their money for a specific period. CASAs also allow consumers and small businesses to develop a working relationship with a bank over time.
Current Account vs. Savings Account
In a CASA, the current account portion pays little or no interest and has no limits on deposits or withdrawals. On the other hand, the savings account portion of a CASA typically has restrictions on the number of withdrawals a person can make, which may vary by bank.
CASA Ratio
In regions where CASA accounts are common, the CASA ratio is an important metric for determining a bank's liquidity. The CASA ratio indicates the percentage of a bank's total deposits that are in both current and savings accounts. A higher CASA ratio suggests that a bank has a higher proportion of stable deposits available for lending.
Difference Between a CASA Account and a Savings Account
A portion of a CASA account is a savings account, and the customer receives interest on the deposit. However, the interest rate on a CASA savings account is usually slightly lower than that of a regular savings account. The CASA account combines checking and savings functions, making it easier for customers to save regularly. The savings in a CASA account are also slightly easier to access compared to a separate savings account.
Difference Between a CASA Account and a Checking Account
The current account portion of a CASA functions as a checking account. Customers can withdraw cash, write checks against the balance, and use a debit card and online banking portal provided by the bank. However, the current account portion of a CASA does not earn any interest.
Interest Rates on CASA Accounts
Interest rates on CASA accounts vary from one bank to another. Generally, CASA accounts offer lower interest rates compared to other offerings at the same bank. This is because CASA accounts have no time commitment, allowing customers to use the money anytime. To get a better interest rate, customers would need to commit to keeping their money in the bank for a specific period of time, such as with term deposits.
In conclusion, CASA accounts combine the functions of a checking account and a savings account. They provide flexibility and ease of access to funds for consumers while serving as a cheaper source of funding for banks. CASA accounts are commonly used in Western Asia and Southeast Asia. The interest rates on CASA accounts are usually lower than on other offerings, as they do not require a time commitment.
