What Is a Negotiable Order of Withdrawal (NOW) Account?

What Is a Negotiable Order of Withdrawal (NOW) Account?

Let me explain what a Negotiable Order of Withdrawal (NOW) Account is—it's essentially an interest-earning demand deposit account where you, as a customer, can write drafts against the money you've deposited. These are commonly just called NOW Accounts.

Key Takeaways on NOW Accounts

Before the Dodd-Frank Act reforms in 2010, which responded to the financial crisis, NOW Accounts were a go-to interest-earning demand deposit option. They provided a way to earn interest on your liquid funds. The act repealed Regulation Q, ending the ban on interest for demand deposit accounts. Now, banks typically don't offer NOW Accounts anymore because they can pay interest on regular checking accounts and other savings products.

Understanding the Negotiable Order of Withdrawal Account

If you're looking to maximize returns on your liquid funds, you have options like interest-bearing checking accounts, high-yield savings, money market accounts, and CDs. You'll find these at commercial banks, mutual savings banks, or savings and loan associations. Up until 2011, NOW Accounts were a solid choice for earning some return on idle cash. Before Dodd-Frank in 2010, regulations separated NOW Accounts from demand deposits, even though they were similar, because Regulation Q blocked interest on demand checking accounts.

Importantly, NOW Accounts and Super NOW Accounts acted as alternatives with a temporary holding period to allow some interest. In 2011, Dodd-Frank repealed Reg Q, letting banks pay interest on demand deposits and removing any edge NOW Accounts had.

History of Negotiable Order of Withdrawal Accounts

The ban on interest for depositors goes back to the Great Depression in the 1930s, when bank turmoil led many to see interest on demand deposits as excessive competition that cut into profits, especially for big New York banks. As rates rose in the 1950s, banks found ways around it, starting with non-cash perks like better features, more branches, and giveaways.

They also introduced implicit interest through things like favorable loan rates tied to deposit balances or low-cost services like check-clearing. Ronald Haselton, former head of Consumer Savings Bank in Worcester, Massachusetts, pioneered the NOW Account to challenge the interest ban directly. In 1974, Congress allowed NOW Accounts in Massachusetts and New Hampshire, expanding to all of New England in 1976 with a 5% interest cap and a seven-day notice requirement.

By 1980, they went nationwide, and in 1986, the cap was removed, leading to Super NOW Accounts with higher rates. Then, Dodd-Frank in 2011 repealed Reg Q, fully lifting the ban and giving banks freedom to create interest-paying checking options.

NOW Accounts vs. Demand Deposit Accounts

These days, NOW Accounts are mostly history. When they were common, the key difference from demand deposit checking accounts—besides interest—was the potential seven-day holding period, meaning you had to plan for possible advance notice. Not every bank enforced it, but that and the interest rate defined them.

Post-Reg Q repeal, checking accounts vary more. They've always been for instant withdrawals and help banks with short-term funding. Competition among banks is low, so most offer minimal interest, and high-rate ones often require high balances, direct deposits, or debit use. Some specialty accounts add cash-back or basic perks.

Why Did NOW Accounts Cease To Be Offered by Banks?

NOW Accounts aren't banned, but since Reg Q's repeal in 2011 ended the interest prohibition on checking accounts, banks have more flexibility to offer interest-bearing options without needing NOW Accounts.

What's the Full Name of a NOW Account?

The full name is Negotiable Order of Withdrawal (NOW) Account, which is an interest-earning type of demand deposit checking account.

What Is a Demand Deposit Account?

A demand deposit account lets you withdraw funds anytime without notice—think standard checking accounts. They're very liquid but usually pay little or no interest.

The Bottom Line

In summary, a Negotiable Order of Withdrawal (NOW) Account was a favored interest-earning demand deposit before the Dodd-Frank Act of 2010, enacted after the financial crisis. It offered interest on liquid funds, but once the act repealed Regulation Q's ban on interest for demand deposits, banks stopped offering NOW Accounts in favor of interest on regular checking and savings products.