Key Takeaways
- Interest-bearing checking account with unlimited check writing.
- Requires minimum balance; pays variable interest rates.
- Created to bypass Regulation Q's interest ban.
- NOW accounts largely replaced by modern interest-bearing accounts.
What is Negotiable Order of Withdrawal (NOW)?
A Negotiable Order of Withdrawal (NOW) account is an interest-bearing deposit account that allows you to write unlimited checks or drafts against your balance while earning interest, functioning similarly to a checking account. This account type became popular as a way to circumvent Regulation Q, which historically prohibited interest payments on demand deposits.
NOW accounts are included in the definition of M1 money supply as checkable deposits, making them a key component in monetary economics and banking.
Key Characteristics
NOW accounts combine features of checking and savings accounts, offering both liquidity and interest earnings. Key characteristics include:
- Interest earnings: Typically pay variable interest on balances, often requiring a minimum amount to earn interest, unlike traditional non-interest-bearing checking accounts.
- Unlimited check writing: You can write an unrestricted number of checks or negotiable orders of withdrawal, providing easy access to funds.
- Withdrawal rules: While some accounts may require advance notice for large withdrawals, this is rarely enforced.
- Regulatory background: Created to bypass Regulation Q limitations, NOW accounts offered a legal way for savings institutions to provide checking-like services.
- Money supply impact: Included in the Federal Reserve's M1 classification, reflecting their role as liquid money.
How It Works
When you deposit funds into a NOW account, your money earns interest while remaining fully accessible through negotiable orders of withdrawal or checks. Unlike standard savings accounts, you can use the account to pay bills or make purchases without restrictions on the number of transactions.
Banks and savings institutions offering NOW accounts manage interest rates that fluctuate with market conditions, often influenced by broader economic factors. These accounts historically helped institutions like Wells Fargo and Bank of America compete in the retail banking sector by blending savings benefits with checking convenience.
Examples and Use Cases
NOW accounts are suitable for customers who want to earn interest on funds while maintaining easy access for day-to-day transactions. Typical examples include:
- Personal banking: Individuals who prefer a single account for bill payments and savings may use a NOW account to maximize returns while preserving liquidity.
- Small businesses: Companies that require frequent payments but want to earn interest can benefit from the account’s flexibility.
- Larger financial institutions: Banks such as Wells Fargo and Bank of America have historically offered NOW accounts as part of their deposit products.
Important Considerations
While NOW accounts offer the advantage of earning interest on accessible funds, the repeal of Regulation Q and changes in banking regulations have reduced their uniqueness, as many checking accounts now pay interest. You should compare rates and terms carefully before choosing a NOW account over other interest-bearing checking or money market options.
Additionally, some NOW accounts may have minimum balance requirements or fees that affect net returns, so reviewing the account agreement is crucial. Understanding how NOW accounts fit into the broader context of banking and deposit account classifications can help you select the best product for your needs.
Final Words
NOW accounts offer a flexible way to earn interest while maintaining easy access to your funds through unlimited check writing. To maximize benefits, compare current interest rates and account terms from multiple banks before deciding.
Frequently Asked Questions
A NOW account is an interest-bearing deposit account that works like a checking account, allowing unlimited check writing while earning interest on the balance. It blends features of savings and checking accounts and is offered mainly by banks and savings institutions.
Unlike traditional checking accounts that usually don't earn interest, NOW accounts pay variable interest on the balance. They also may have withdrawal rules like advance notice requirements, though these are rarely enforced.
Individuals, certain nonprofit organizations, and some governmental units are eligible to open NOW accounts, which are primarily offered by commercial banks, mutual savings banks, and savings and loan associations.
Yes, NOW accounts allow unlimited check writing or negotiable orders of withdrawal, similar to demand deposit accounts, making it convenient for bill payments and everyday transactions.
NOW accounts were created in the 1970s as a workaround to Regulation Q, which prohibited interest payments on demand deposits. They allowed savings institutions to offer interest and compete with commercial banks' checking services.
NOW accounts have declined in popularity since the 2011 repeal of Regulation Q's interest ban, as banks can now pay interest on all checking accounts. Many features of NOW accounts have become obsolete.
A Super NOW account combines features of NOW accounts with money market accounts, offering higher interest rates but sometimes with lower liquidity or additional restrictions compared to standard NOW accounts.
Yes, NOW accounts are counted as checkable deposits within the Federal Reserve's M1 money supply measure, reflecting their role as liquid funds accessible on demand.
