Not sure but you might have heard from your bank manager or financial adviser the term “CASA”. What exactly does it mean? More importantly, why should it matter to you as a bank customer? Let’s understand in detail.
CASA means Current Account Savings Account. It combines two bank accounts: Current Accounts and Savings Accounts. Banks use CASA to refer to the money customers have in these accounts.
In simple terms, CASA is the money customers keep in their Current or Savings accounts. Banks use this money to lend or invest in other things.
A Current Account is mainly used by businesses and individuals who make many transactions. It’s designed for those who need quick access to their money and want to do multiple transactions each day.
No Interest Earned: Unlike savings accounts, current accounts do not earn interest.
No Transaction Limit: There is no limit on the number of transactions you can make in a day.
Overdraft Facility: Current accounts offer an overdraft facility, allowing businesses to withdraw more money than is available in the account.
A Savings Account is for people who want to save money and earn interest on it. It helps you save by giving you a good interest rate.
Interest Earned: Savings accounts earn interest, which can vary from bank to bank. Interest rates are generally up to 8% per annum.
Limited Transactions: Unlike current accounts, savings accounts have limits on the number of free transactions you can make each month.
Low Minimum Balance: Most savings accounts require a minimum balance, though some banks offer zero-balance savings accounts.
CASA is very important not just for individuals but also for banks. Here's why:
Low-Cost Funding for Banks: CASA deposits help banks get money cheaply. They don't pay high interest on current accounts and pay low interest on savings accounts. This lets banks give loans at good rates.
Higher Profit Margins for Banks: Since banks pay less interest on CASA deposits, they can lend money at higher rates. The difference between what they pay depositors and what they charge borrowers is called Net Interest Margin (NIM), which helps banks make more money.
Stability for Banks: A higher CASA ratio gives banks stability because these funds are less likely to be taken out all at once. This steady money helps banks manage their cash better.
Easy Access for Customers: CASA accounts let customers easily access their money. Whether saving in a savings account or doing daily transactions with a current account, CASA offers the flexibility needed.
The CASA Ratio is an important metric that helps banks assess their financial health. It is calculated as:
ASA Ratio = Total Deposits / CASA Deposits × 100
A higher CASA ratio indicates that a bank is relying more on low-cost current and savings accounts for its deposits, which is generally seen as a good sign for profitability.
If a bank has total deposits of ₹100 crore, out of which ₹40 crore is in current and savings accounts, the CASA ratio would be:
CASA Ratio = (40 / 100) × 100 = 40%
This means 40% of the bank’s total deposits come from CASA accounts.
CASA is not just beneficial for banks—it offers several advantages to customers as well.
1. Flexibility: Current and savings accounts let you manage your money easily. You can access your funds whenever you need them, whether for daily business or saving for the future.
2. Low-Cost Banking: Savings accounts help you earn a little interest while keeping your money safe. Banks usually charge low or no fees for transactions, making it a cheap way to manage your money.
3. Access to Additional Services: Banks provide extra benefits with CASA accounts, such as:
Internet and Mobile Banking: Manage your money online without going to the bank.
Debit Cards: Get free or low-cost debit cards for purchases and ATM use.
Bill Payment Facilities: Pay bills directly from your account easily.
4. Financial Discipline: Having a savings account helps you save money and earn interest, encouraging better financial habits.
CASA is not just beneficial for banks and individuals; it also plays a very important role in our economy.
Boosts Lending: A higher CASA ratio means banks can borrow money cheaply and lend it to businesses and people at lower rates. This helps businesses grow and allows people to invest in homes, education, and other things.
Supports Financial Inclusion: Banks offer zero-balance savings accounts to help more people use banking services. These accounts help bring unbanked individuals into the banking system, making the economy more inclusive.
Facilitates Government Initiatives: Government programs like Jan Dhan Yojana encourage people to open savings accounts, which increases CASA deposits.
| Feature | Current Account | Savings Account | Importance of CASA for Banks |
|---|---|---|---|
| Purpose | Designed for businesses with frequent transactions | Designed for individuals looking to save and earn interest | Provides banks with low-cost funding |
| Interest | No interest earned | Interest earned (up to 9%) | Increases banks' profit margins |
| Transaction Limit | No limit on transactions | Limited free transactions per month | Ensures financial stability for banks |
| Minimum Balance | High minimum balance requirement | Low minimum balance or zero-balance accounts | Helps manage liquidity efficiently |
| Overdraft Facility | Available in most current accounts | Not available in savings accounts | Improves profitability and efficiency |
Understanding CASA is important for both customers and banks. For banks, CASA deposits give them a steady and cheap source of money for loans and investments, helping them make a profit. For customers, CASA accounts provide a safe and flexible way to manage money, whether for business or personal use.
Knowing how CASA works can help you make better choices about saving and managing your money. By keeping a CASA account, you get easy access to your funds and also help the financial system.
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CASA stands for Current Account Savings Account. It refers to the funds that customers keep in current and savings accounts with the bank.
CASA provides a low-cost source of funds for banks. Since current accounts earn no interest and savings accounts offer relatively low interest, banks can lend these funds at higher rates and improve their profitability.
A higher CASA ratio indicates that a bank has more low-cost deposits, which helps increase its net interest margin (NIM) and boosts profitability. It also provides more stable funding for lending activities.
Yes, individuals can open both types of accounts. However, current accounts are generally designed for businesses or people who need to perform frequent transactions, while savings accounts are intended for individuals looking to save money and earn interest.
A savings account under CASA allows you to earn interest on your deposits, provides flexibility for daily transactions, and offers low or no fees for maintaining the account. Additionally, banks offer internet banking, debit cards, and bill payment facilities.
For current accounts, there is generally no limit on transactions. However, savings accounts usually have a limit on free transactions each month, after which fees may apply.
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