NOW account

What is a NOW account?

A NOW account, otherwise known as negotiable order of withdrawal account, is an interest-earning bank account whereby the owner may write drafts against the money held on deposit. Mutual savings banks, commercial banks, and savings and loan associations offer NOW accounts.

Deeper definition

The Banking Act of 1933 banned banks from paying any interest on deposits that were payable on demand after the bank scare of the Great Depression.

Fast forward to the 1970s when Ronald Haselton, president and CEO of Consumer Savings Bank in Worcester, Massachusetts, led the effort for banks to offer interest-bearing checking accounts. In 1974, Congress allowed NOW account in Massachusetts and New Hampshire and expanded it to all of New England two years later.

At the beginning, there was a roughly 5 percent interest rate ceiling, and institutions in the pilot program offered the full amount. In 1980, NOW accounts were offered nationwide.

Starting in 1986, the ceiling was lifted on NOW account rates, and in 2011 under the Dodd-Frank Wall Street Reform and the Consumer Protection Act of 2010, it was lifted on demand-deposit accounts, removing the only major difference between the two.

Still, legally speaking, banks have the right to require seven days’ notice of withdrawals from a NOW account — a feature that is rarely exercised.

In addition to NOW accounts, there are “super NOW accounts.” These accounts combine NOW accounts with money market accounts. This type of account typically carries a lower rate than a money market account, but a higher rate than a NOW account.

NOW account example

Sam goes to CBD Bank to open an interest-earning account that offers prompt payment while also offering him an opportunity to write drafts against deposited money. He wants an account from which he can make withdrawals when and how he wants, including cashing checks. The bank finds that a NOW account is the most appropriate for Sam.

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