CASA stands for Current Account Savings Account, which is a type of non-term deposit account offered by some banks. It combines the features of a checking account and a savings account, allowing customers to use their money for everyday banking and savings needs without a specific maturity or expiration date. 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. CASA is a cheaper way for banks to raise money than issuing term deposits, such as certificates of deposit (CDs), which offer higher interest rates to the customers. The interest paid on the CASA deposit is lower than on a term deposit, so the banks net interest income (NII) is higher, making CASAs a cheaper source of funding for banks.

CASA ratio is the proportion of a banks current and savings account deposits to total deposits. The higher the CASA ratio, the lower the cost of funds for the bank. Banks encourage the use of CASA as it helps them generate a higher profit margin. A high CASA ratio reflects the bank’s ability to raise money with low costs, making it better for banks. CASA funds are cheap funds as banks pay no interest on current accounts and low interest of 4% to 6% on savings account deposits. A CASA ratio over and above 40% is considered healthy.