What Is a NOW Account?

Definition and Examples of a NOW Account

Couple paying bills at their kitchen table

 Emma Innocenti / Getty Images

A negotiable order of withdrawal (NOW) account is a checking account that earns interest, but the bank can require at least seven days’ notice for any withdrawals.

These accounts were created as a loophole to a Great Depression–era rule that prevented interest payments from being made to checking accounts. They are less frequently used now, as many types of checking accounts can earn interest.

Learn how NOW accounts were created and why they fell out of use.

What Is a NOW Account?

A NOW account is a negotiable order of withdrawal account. This is a type of checking account that earns interest. However, these accounts allow banks to require that customers provide at least seven days’ notice before withdrawals.

NOW accounts were created in response to a Great Depression–era rule called the Banking Act of 1933. This rule kept banks from paying any interest on deposits that could be payable on demand. The goal was to avoid another bank run and to keep banks safe and secure for consumers.

Because the Great Depression was so severe, the regulatory response to banking rules was also strict, and this rule reflected that attitude. Over time, however, bankers started looking for ways to get around the rules and attract more customers.

In the 1970s, the CEO and president of Consumer Savings Bank in Worcester, Massachusetts, led the charge for banks to be able to offer checking accounts that paid interest. He came up with the idea of negotiable order of withdrawal accounts.

In 1974, Congress permitted NOW accounts in two states: New Hampshire and Massachusetts. In 1976, Congress expanded these accounts to all of New England. By 1980, anyone in the United States could get a NOW account and earn interest on their checking accounts.

At this time, most banks were unable to cross state lines. This allowed NOW accounts to be implemented and tested in one region before they were made available to the rest of the country.

How a NOW Account Works

A NOW account is similar to a regular checking account. A customer opens an account and deposits money, which can then be withdrawn via an ATM or used to make payments with a check, debit card, or online payment.

They differ from standard checking accounts because banks have the right to require notice of seven days (or more) on any withdrawals made from a NOW account. However, they also pay interest.

Like other types of checking accounts, NOW accounts are FDIC insured.

When they were first created, NOW accounts were popular because they gave consumers the option of earning interest on a checking account, which was not otherwise available.

In 2011, the Dodd-Frank Wall Street Reform allowed all checking accounts to bear interest. This removed the difference between NOW accounts and checking accounts, other than the ability for a bank to withhold your withdrawal for seven days in a NOW account.

The hold feature is seldom exercised since most people could get regular interest-bearing checking accounts that didn’t have a hold contingency. Today, very few NOW accounts are used, as many types of checking accounts can bear interest.

Do I Need a NOW Account?

NOW accounts ultimately paved the way for standard interest-bearing checking accounts. Today, however, few customers use NOW accounts because many checking accounts pay interest.

The best rates are often reserved for those consumers who have significant deposits. Average interest rates for checking accounts are generally less than 1%.

To get the best deal on an interest-bearing checking account, you need to compare rates across institutions, because they vary greatly. You do not, however, need to open a NOW account.

Alternatives to a NOW Account

High-interest checking accounts or money market accounts allow customers to earn interest on their money while retaining the easy access that a checking account provides. These can be offered through either banks or credit unions.

High-yield checking accounts often come with certain conditions for earning higher interest rates, such as:

  • A certain number of transactions per month
  • A minimum balance
  • A balance cap, above which you earn lower interest

Credit unions typically have specific membership requirements to join, and you must check with each one individually to see if you qualify. If you don’t qualify for a credit union with a high-interest checking account, then you may want to check out online-only banks to get the best rate.

Because online-only banks have far less overhead than traditional brick-and-mortar banks, they can offer higher interest rates. Many online banks will offer high-yield checking accounts that earn higher interest than standard checking accounts. The available rate will depend on the bank and the size of your balance.

Key Takeaways

  • A NOW account—or negotiable order of withdrawal account—is a checking account that earns interest.
  • In exchange, the bank can require at least seven days’ notice for any withdrawals.
  • These accounts were created as a loophole to a Great Depression–era rule that prevented interest payments from being made to checking accounts.
  • NOW accounts are less frequently used today, because many types of checking accounts can earn interest. When NOW accounts are used, banks rarely enforce the withdrawal rule.