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Prior to 2008, conventional checking accounts didn't pay interest. So if you wanted to earn interest on your bank deposits, what could you do? One option was to open a negotiable order of withdrawal (NOW) account.
Today, given that you can earn interest on checking accounts (as well as savings accounts, money market accounts, and CDs), NOW accounts aren't very attractive for most depositors. Plus, they typically pay just 0.01% to 0.20% APY, and you can't find them at major banks or credit unions.
Still, it can be helpful to understand how these accounts work compared to other options on the market today.
Read more: The 10 best high-yield online checking accounts
Definition of a NOW account
A NOW account is a bank account with a mix of checking and savings account features. These accounts usually come with debit cards and ATM access. Instead of checks, however, you can write drafts, which are similar to checks, except that the funds are guaranteed to be available to cover a draft payment.
One of the most unique features of a NOW account is that the bank can require you to give at least seven days’ notice before you make a withdrawal or transfer. Fortunately, banks rarely enforce this requirement. Here are a few other ways these accounts are unique:
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Availability: NOW accounts are only offered by mutual savings banks, commercial banks, and lending associations.
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Eligibility: You can only open a NOW account if you're an individual, a sole proprietor, or a nonprofit organization.
Read more: What is a mutual bank, and what are the benefits of joining one?
What is a Super NOW account?
Another version of the NOW account is the Super NOW account. You can earn higher interest rates with a Super NOW account, but you'll have to keep a higher minimum balance.
For example, Flora Bank & Trust offers a NOW account with a $1,000 minimum opening balance, but their Super NOW account has a $2,500 minimum opening deposit. Rates are not disclosed.
History of NOW accounts
NOW accounts are a sort of banking relic at this point since they're no longer necessary to fulfill your primary banking needs. Here's how they came to be:
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1933: The Banking Act prohibits banks from paying interest on accounts where the customer can remove funds without notice (also known as demand deposit accounts). The act is meant to prevent banks from failing when customers move cash to external accounts with higher rates.
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1980: The Omnibus Banking Act allows banks to create NOW accounts that pay interest in order to attract customers' deposits.
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1986: Banks are no longer required to cap interest on NOW accounts, but they still can't pay interest on demand deposit accounts.
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2008: Regulation Q is repealed and banks can pay interest on demand deposit accounts, making NOW accounts practically obsolete.
NOW vs. demand deposit accounts
Checking and savings accounts, also called demand deposit accounts (DDAs), have certain features in common with NOW bank accounts. But there are fundamental differences:
Demand deposit account (DDA): An account where you can withdraw or transfer funds up to a set limit "on demand," or without giving the bank any notice. Historically, DDAs were synonymous with checking accounts. Today, they include checking and savings accounts and, in some instances, money market accounts.
Read more: What is a demand deposit account, and how does it work?
Negotiable order of withdrawal (NOW) account: The bank can require seven or more days’ notice for withdrawals and transfers. However, most banks do not uphold this requirement.
Both types of accounts are FDIC-insured up to $250,000, but neither typically pays competitive interest rates.
Do NOW accounts still exist?
NOW accounts are essentially no longer available, though we did find a short list of NOW accounts, primarily offered by mutual savings banks:
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Capital Bank: The minimum opening deposit is $1,000, and you'll have to maintain a $1,000 daily balance to earn interest. The current rate is 0.02% APY.
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Flora Bank & Trust: NOW and Super Now accounts are available, with opening deposits of $1,000 and $2,500 respectively. Rates are not disclosed.
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Investment Savings Bank (ISB): The NOW account earns 0.01% APY, with a minimum opening deposit of $50.
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Sherwood State Bank: The minimum opening balance on this 0.02% APY account is $750. It comes with a MasterCard Check Card.
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Napoleon State Bank: The Super Now account earns 0.10% APY, with a minimum opening deposit of $1,000.
