CASA (Current & Savings Accounts): Guide to Low-Cost Bank Deposits
Complete guide to CASA ratio in Indian banking. Understand current accounts, savings accounts, why CASA matters for banks, and how it affects you.
Introduction: The Magic of Cheap Money
HDFC Bank’s CEO was asked about the bank’s profitability secret. “Our CASA ratio,” he replied. With over 45% of deposits in current and savings accounts, HDFC Bank borrows money from depositors at 3-4% and lends at 10-15%. That spread is pure profit.
CASA is one of banking’s most important metrics, yet most customers don’t understand it. Let’s decode CASA and why it matters—for banks and for you.
What is CASA?
Definition
CASA = Current Account + Savings Account
CASA Ratio measures the proportion of a bank’s total deposits that come from current and savings accounts.
$$CASA\ Ratio = \frac{Current\ Account\ Deposits + Savings\ Account\ Deposits}{Total\ Deposits} \times 100$$
Why It’s Called “Low-Cost Deposits”
| Deposit Type | Interest Rate (Typical) |
|---|---|
| Savings Account | 2.7-4% |
| Current Account | 0% |
| Fixed Deposit | 6-7.5% |
CASA deposits cost banks significantly less than term deposits!
Current Account Explained
What is a Current Account?
A transactional account for businesses and frequent traders.
Features
| Feature | Current Account |
|---|---|
| Interest | 0% (no interest paid) |
| Minimum Balance | ₹10,000 - ₹1,00,000+ |
| Transaction Limit | No limit |
| Cheque Book | Yes, free (usually) |
| Overdraft | Available |
| Target Users | Businesses, professionals |
Who Uses Current Account?
- Businesses
- Traders and merchants
- Professionals (doctors, lawyers)
- Partnership firms
- Companies
- Frequent transaction users
Why Zero Interest?
Bank’s Logic:
- High transaction cost to bank
- Cheque clearing, cash handling
- Overdraft facilities provided
- Convenience compensates for zero interest
Savings Account Explained
What is a Savings Account?
An account for individuals to save money while maintaining liquidity.
Features
| Feature | Savings Account |
|---|---|
| Interest | 2.7-4% p.a. (varies by bank) |
| Minimum Balance | ₹0 - ₹10,000 (varies) |
| Withdrawals | Some limits may apply |
| Target Users | Individuals, households |
| Tax Benefit | Section 80TTA (up to ₹10,000) |
Types of Savings Accounts
1. Basic Savings (BSBD)
- Zero minimum balance
- Basic features
- Jan Dhan accounts
2. Regular Savings
- Minimum balance required
- Full features
3. Premium/Salary Savings
- Zero balance (salary accounts)
- Premium benefits
4. High-Interest Savings
- Higher interest (4-7%)
- Usually digital banks/SFBs
- May have conditions
Interest Calculation
Daily Balance Method:
$$Interest = \frac{Daily\ Balance \times Rate \times Days}{365 \times 100}$$
Credited: Quarterly or monthly
Why CASA Ratio Matters to Banks
Cost of Funds Impact
Example:
| Bank | CASA Ratio | Average Deposit Cost |
|---|---|---|
| Bank A | 45% | 4.5% |
| Bank B | 25% | 5.5% |
Difference: Bank A saves 1% on deposit costs.
On ₹10 lakh crore deposits = ₹10,000 crore savings!
Net Interest Margin (NIM)
$$NIM = \frac{Interest\ Earned - Interest\ Paid}{Average\ Interest-Earning\ Assets}$$
Higher CASA → Lower Interest Paid → Higher NIM → More Profit
Stability of Deposits
CASA deposits are:
- Sticky: Customers don’t move easily
- Granular: Many small depositors
- Stable: Less rate-sensitive than FDs
Banks with high CASA don’t face sudden deposit withdrawal during rate changes.
Competitive Lending Rates
Banks with high CASA can:
- Offer lower loan rates
- Compete for quality borrowers
- Maintain margins despite rate competition
CASA Ratio of Indian Banks
Comparison (Indicative)
| Bank | CASA Ratio |
|---|---|
| HDFC Bank | 40-45% |
| Kotak Mahindra Bank | 55-60% |
| ICICI Bank | 42-47% |
| SBI | 42-45% |
| Axis Bank | 42-46% |
| Yes Bank | 28-32% |
| IndusInd Bank | 38-42% |
Note: CASA ratios change quarterly. Check latest investor presentations.
What Drives High CASA?
For Retail Banks:
- Salary account tie-ups
- Strong branch network
- Good digital banking
- Relationship banking
For Corporate-Heavy Banks:
- Current accounts of businesses
- Trade finance clients
- Corporate payroll relationships
Impact of CASA on You
As a Savings Account Holder
Why Your Interest is Low:
- Banks want cheap deposits
- Competition keeps rates just attractive enough
- Raising savings rates hurts NIM
What You Can Do:
- Compare savings account rates
- Consider high-interest options (SFBs, digital banks)
- Don’t keep excess in savings (move to FD/investments)
As a Current Account Holder
Why You Get Zero Interest:
- Banks profit from your float
- Transaction services provided
- Overdraft available
What You Can Do:
- Negotiate fee waivers
- Use sweep facilities
- Compare account packages
As a Loan Borrower
High CASA Bank Benefits You:
- Lower cost of funds = potentially lower loan rates
- Better rate transmission
- Competitive pricing
As a Bank Investor
CASA Ratio Indicates:
- Deposit franchise strength
- Profitability potential
- Liability quality
- Management execution
High CASA = Generally positive for bank stocks
Strategies Banks Use to Boost CASA
1. Salary Account Tie-Ups
- Partner with corporates
- Zero balance benefit
- Captive deposits
- Stickiness (hard to switch)
Example: IT company with 50,000 employees = steady CASA source
2. Current Account Services
- Trade finance packages
- CMS (Cash Management Services)
- Payment gateway integration
- Bundled offerings
3. Digital Banking Leadership
- User-friendly apps
- UPI dominance
- Digital savings accounts
- Young customer acquisition
4. Branch Network
- Reach for retail deposits
- Service for businesses
- Cash deposit access
- Relationship building
5. Transaction Banking
- Vendor payments
- GST payments
- Government transactions
- Bill collections
CASA vs Term Deposits
Comparison
| Parameter | CASA | Term Deposits |
|---|---|---|
| Interest Rate | 0-4% | 6-7.5% |
| Lock-in | None | Yes |
| Liquidity | High | Low (penalty) |
| Cost to Bank | Low | High |
| Customer Behavior | Transaction | Investment |
| Rate Sensitivity | Low | High |
Portfolio Mix
Banks aim for optimal mix:
- High CASA for cheap funding
- Some term deposits for stability
- Wholesale funding for flexibility
Ideal: High CASA + diversified funding sources
Current Account Fees
Common Charges
| Service | Typical Charge |
|---|---|
| Minimum Balance Penalty | ₹500-2,000/quarter |
| Cheque Return | ₹200-500 per cheque |
| Cash Handling (above free limit) | ₹2-5 per ₹1,000 |
| Demand Draft | ₹25-100 |
| RTGS/NEFT | ₹25-50 |
| Account Statement | ₹50-100 |
Negotiating Fees
Business accounts can negotiate:
- Minimum balance waiver
- Transaction fee reduction
- Better foreign exchange rates
- Overdraft interest rates
Savings Account: Maximizing Returns
Choosing High-Interest Savings Account
| Bank/Account Type | Interest Rate |
|---|---|
| Major Private Banks | 2.7-3.5% |
| SBI | 2.7% |
| Small Finance Banks | 5-7% |
| Digital Banks (Kotak 811, Jupiter) | 4-6% |
Tips to Maximize
✅ Compare rates (especially SFBs) ✅ Use sweep-in FD for excess ✅ Claim 80TTA deduction (up to ₹10,000 interest) ✅ Don’t keep too much in savings ✅ Use high-interest account for emergency fund
Tax on Savings Interest
Section 80TTA:
- Deduction up to ₹10,000 for savings interest
- For non-senior citizens
- Only savings account interest (not FD)
Section 80TTB (Senior Citizens):
- Up to ₹50,000 deduction
- Includes savings + FD interest
CASA in Digital Era
Impact of UPI
- More transactions = more float
- Current account importance increased
- Savings account transactions up
- Digital behavior tracked
Neo Banks and CASA
Neo banks focus on:
- High savings rates to attract
- Low-cost digital operations
- Premium on convenience
- Build CASA through engagement
Future Trends
- Real-time interest calculation
- Dynamic interest rates based on balance
- Integration with investment platforms
- Bundled financial services
Key Metrics Related to CASA
Cost of Deposits
$$Cost\ of\ Deposits = \frac{Interest\ Expense\ on\ Deposits}{Average\ Deposits}$$
Net Interest Income (NII)
$$NII = Interest\ Income - Interest\ Expense$$
Higher CASA → Lower Interest Expense → Higher NII
Relationship Metrics
| Metric | What It Shows |
|---|---|
| CASA Ratio | Low-cost deposit proportion |
| Cost of Funds | Average borrowing cost |
| NIM | Lending-borrowing spread |
| Deposit Mix | Term vs CASA composition |
Key Takeaways
- CASA = Current + Savings Accounts – Cheap source of funds
- Zero interest on current accounts – Businesses use for transactions
- Savings accounts pay 2.7-4% – Lower than FDs
- High CASA ratio is good for banks – Lower cost, higher profits
- Banks compete for CASA – Salary accounts, digital banking
- Check savings account rates – SFBs offer higher
- CASA ratio indicates bank health – Important for investors
Disclaimer
This article is for educational purposes only. Interest rates and bank metrics change frequently. Verify current information with banks. This is not financial advice.
Frequently Asked Questions
Q: What is a good CASA ratio for a bank? A: Generally, 40%+ is considered good. Higher is better for profitability.
Q: Why don’t current accounts earn interest? A: RBI doesn’t mandate interest on current accounts. Banks offset transaction service costs by not paying interest.
Q: Should I keep money in savings account? A: Keep only emergency fund and short-term needs. Excess should be in FDs or investments for better returns.
Q: Do all banks have same savings interest rate? A: No. Small Finance Banks and digital banks often offer higher rates (5-7%) compared to large banks (2.7-3.5%).
Q: Can I convert savings account to current account? A: Yes, but you’ll stop earning interest. Business users often need current accounts for transactions.
Q: How does high CASA help loan borrowers? A: Banks with high CASA have lower cost of funds and can pass on benefits through lower loan rates.
CASA might seem like banking jargon, but it affects everyone—from the interest you earn on savings to the loan rate you pay. Banks fiercely compete for CASA deposits because cheap deposits mean better profits. As a customer, understand this game and make informed choices about where you keep your money.