A current account, savings account (CASA) ratio is a metric used in the banking industry to assess the proportion of a bank’s total deposits held in current and savings accounts compared to term deposits. A higher ratio generally indicates a lower cost of funds for the bank, as current and savings accounts typically offer lower interest rates than term deposits. For example, if a bank holds $80 million in current and savings accounts and $20 million in term deposits, its CASA ratio is 80%. This ratio is often calculated and analyzed by financial institutions to optimize profitability and liquidity management.
This metric is a key indicator of a bank’s operational efficiency and profitability. Maintaining a healthy ratio allows institutions to reduce their overall interest expense, freeing up capital for lending and other investments. Historically, banks have strived to improve this ratio as a means of enhancing their financial stability and competitiveness. A strong ratio suggests a stable deposit base and can be a positive signal to investors and regulators.
