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CASA is an acronym for Current Account Savings Account. It is a term
used in the banking industry to refer to the total amount of money that
an account holder has in both the current and savings accounts. This
metric is used by banks to determine the overall financial health of an
account holder and the level of liquidity in their accounts.
What is CASA?
When we talk aboutCASA, we are referring to the total amount of money that an account
holder has in both the current and savings accounts. This metric is
important to banks because it helps them to determine the overall
financial health of an account holder and the level of liquidity in
their accounts.
The formula for Calculating CASA
The formulaused to calculate CASA is straightforward. It involves adding the
balance in the current account and the balance in the savings account
and dividing the result by the total deposits in both accounts.
CASA Ratio = (Current Account Balance + Savings Account Balance) / Total Deposits
For
example, if an account holder has a current account balance of $10,000
and a savings account balance of $20,000, and the total deposits in both
accounts are $50,000, the CASA ratio would be calculated as follows:
CASA Ratio = ($10,000 + $20,000) / $50,000 = 0.6 or 60%
Interpreting the CASA Ratio
TheCASA ratio is expressed as a percentage and is used by banks to
determine the level of liquidity in an account holder's accounts. A
higher CASA ratio indicates that an account holder has a higher
proportion of their deposits in savings accounts, which earn interest
and are less likely to be withdrawn in the short term.
Banks
prefer account holders with a higher CASA ratio because it means that
they are less likely to need to borrow money in the short term. This, in
turn, reduces the cost of borrowing for the bank and allows them to
offer better interest rates on loans and other financial products.
How do Current Account Savings Accounts (CASA) Work?
A current Account Savings Account (CASA) is a type of bank account that allows
customers to deposit and withdraw money, make payments, and receive
interest on their savings. This type of account is offered by almost all
banks and is an important source of funding for them.
It allows you to deposit and withdraw money whenever you
need it. There is no limit on the number of transactions you can make,
unlike some other types of accounts. Additionally, you can use a debit
card or write a cheque to make payments directly from your account.
Current Account vs. Savings Account
A
current account, also known as a checking account, is designed for
frequent transactions such as paying bills, making purchases, and
withdrawing cash. These accounts typically come with a debit card,
checks, and online banking access, allowing you to easily access your
money whenever you need it. Current accounts often have fees, such as
monthly maintenance fees or transaction fees, but they also offer
benefits such as overdraft protection and the ability to earn interest
on your balance.
On the other hand, a savings account is designed
for long-term savings goals. These accounts usually have higher
interest rates than current accounts, allowing your money to grow over
time. Savings accounts are best used for putting money away for a
specific purpose, such as a down payment on a house or a vacation. While
you can withdraw money from a savings account, it's not as easy to
access as a current account, and there may be limits on how often you
can withdraw money without incurring a fee.
One key difference
between the two accounts is how interest is earned. With a current
account, interest is often earned on your balance, but the rate is
typically lower than in a savings account. Savings accounts, on the other
hand, are designed to earn interest on your balance, which can
significantly grow your money over time.
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