What Is a NOW Account?

A graphic of a neo-classical bank building with a dollar sign in the middle

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A NOW account—Negotiable Order of Withdrawal— is simply a regulatory way for a specific type of checking account to bear interest.

These accounts can be confusing, but they were created as a loophole to a Great Depression-era rule that prevented interest payments from being made to checking accounts.

Why Checking Accounts Couldn’t Pay Interest

After the Great Depression, The Banking Act of 1933 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. This regulatory oversight is why, over time, bankers started looking for ways to get around the rules and attract more customers.

How NOW Accounts Were Developed

Bankers wanted to come up with a way to be more competitive. 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 – or NOW accounts.

It was this initiative that in 1974 led Congress to permit NOW accounts in two states, New Hampshire and Massachusetts. In 1976 they expanded these accounts to all of New England. By 1980 anyone in the United States could get a NOW account and earn interest in their checking accounts.

At this time, most banks were not able to cross state lines, so the roll-out of one region having NOW accounts to test and then making them available to the rest of the country made sense.

There was a five percent cap on the interest rates that NOW accounts could pay. Even though banks had (and still have) the right to require seven days’ notice on any withdrawals made from a NOW account – NOW accounts were popular because they gave consumers the option of earning interest on what was essentially a checking account.

Are There NOW Accounts Available Today?

There are very few NOW accounts at this point, because in 2011, the Dodd-Frank Wall Street Reform allowed all checking accounts to bear interest. This Act took away 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 checking accounts with interest that didn’t have a hold contingency. So, NOW accounts have become less relevant with no real benefit to a consumer over a traditional checking account.

Interest Bearing Checking Accounts Without a NOW Account

Can you still earn interest on a checking account – even though NOW accounts are less available?

Yes. Many checking accounts pay interest. The best rates are often reserved for those consumers who have significant deposits, with the average interest rates for checking accounts being .06 percent annual percentage yield (APY).

However, if you have even $2,500 to deposit, you can earn far more money by making sure your money is in the right place. Currently, with a $2,500 deposit, you can earn a five percent APY at First Financial Credit Union, and with a $3,000 deposit, you can earn a 4.25 percent APY at La Capitol Federal Credit Union.

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 paying checking account, then you may want to check out online-only banks to get the best rate.

Online-Only Banks Often Have Much Higher Interest Rates on Checking Accounts

Because online-only banks have far less overhead than traditional brick and mortar banks, they can offer much better than the average .06 percent interest rates.

For instance, Radius Bank is currently offering a one percent APY on balances of $2,500 to $99,999.99 and a 1.20 percent interest rate on balances over $100,000, and Bank5 Connect is paying a .76 percent APY with balances starting at just $100.

NOW accounts ultimately paved the way for standard interest-bearing checking accounts. But to get the best deal on an interest-bearing checking account, you do need to compare rates across institutions, because they vary greatly.