NOW Accounts: Understanding Interest & Withdrawal Rules

NOW accounts — or negotiable order of withdrawal accounts — were created as a loophole to Great Depression-era banking regulation.

NOW accounts offer interest on customer deposits, but require seven days’ written notice before customers can make withdrawals. While it’s still possible to get a NOW account, they’re no longer common because the banking regulations they were created to get around no longer exist.

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• How do NOW accounts work?
• NOW account and demand deposit: What’s the difference?
• How much does a NOW account cost?
• What are some pros and cons of NOW accounts?
• Examples of NOW accounts

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How do NOW accounts work?

NOW accounts are a type of bank account that function similarly to a checking account, which means you can make deposits and withdrawals, write checks and use a debit card. But unlike checking accounts, NOW accounts are guaranteed to pay interest on your account balance. While some checking accounts are interest-bearing, many aren’t.

The caveat is that with NOW accounts, banks can require at least seven days’ notice before you make a withdrawal — though this rule is rarely enforced.

The history of NOW accounts began during the Great Depression. On the heels of the stock market crash and banking panic that sparked the economic crisis in the 1930s, Congress passed the Banking Act of 1933. The bill introduced Regulation Q, which banned banks from making interest payments on deposits that were payable on demand, such as what you get with a traditional checking account.

However, in the 1970s, Ronald Haselton, president and CEO of Worcester, Massachusetts-based institution Consumer Savings Bank, introduced the first NOW account. The plan was designed to circumvent Regulation Q requirements by instituting a seven-day buffer period on withdrawals. By 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act reversed the rule made by the Banking Act, allowing the banking sector to pay interest on demand deposit accounts.

As a result, NOW accounts aren’t as popular as they once were because the reason they were created is no longer an issue. Financial institutions and commercial banks now regularly offer withdrawal accounts featuring accrued interest, including money market accounts and NOW accounts.

NOW account and demand deposit: What’s the difference?

There are many types of accounts that allow consumers to make withdrawals on demand. Demand deposit accounts and NOW accounts are two examples. A demand deposit account — another name for a checking account — typically allows you to withdraw money without advance notice, although some types of demand deposit accounts may require up to six days’ notice before withdrawals.

In contrast, a NOW account technically requires seven days’ written notice before you can take money out, though banks generally don’t hold to that.

Another big difference between the two is that businesses can have demand deposit accounts but can’t have NOW accounts — the latter are only available to consumers and sole proprietors.

How much does a NOW account cost?

The cost of a NOW account can vary from bank to bank. In most cases, you’ll see a lot of the same fees that checking accounts charge, such as a monthly service charge, ATM fees and overdraft fees. But some banks may also charge a per-item fee for each check you write.

You may also have to maintain a minimum balance in order to earn interest or avoid the monthly fee, and most NOW accounts will require new customers to make a minimum deposit to open the account. Before you open a NOW account, be sure to compare fees with other accounts and alternatives so you can avoid paying more than necessary.

What are some pros and cons of NOW accounts?

The key benefit of NOW accounts over traditional checking accounts is that NOW accounts always pay interest, giving consumers a greater incentive to open one. Interest is often paid monthly at the end of a statement cycle, based on one of several factors, including ending balance or average balance per month. Before opening a NOW account, be sure to check how interest is applied. 

On the flip side, it can be tough to find a NOW account that doesn’t charge monthly maintenance fees. Additionally, other interest-bearing checking accounts may come with more convenient features, such as unlimited ATM withdrawals. Also, while most banks don’t enforce the seven-day rule, they do have the power to exercise it as they please, which adds some uncertainty that you don’t have with a checking account.

Examples of NOW accounts

  Minimum opening deposit Minimum balance requirement Interest rate (annual percentage yield) Notable feature Monroe Savings Bank $250 $250 to earn interest and avoid a $7 monthly fee 0.10% APY Customers age 55 and older aren’t charged the $7 monthly fee The Union Bank $500 $500 to earn interest and avoid a $5 monthly fee Rate changes daily, must call a local branch for the current rate Customers age 50 and older get free personalized checks Century Savings & Loan Association $300 $500 to earn interest; $1,000 to avoid an $8 monthly fee 0.05% APY Only available in two counties in Colorado Brunswick State Bank $1,000 $1,000 to avoid a $2 monthly fee 0.15% APY on balances up to $39,999.99; 0.25% on balances of $40,000 or more Charges a fee of 14 cents for each check or paper debit unless your average daily balance is $3,000 or more UNB Bank $500 $500 to avoid a $5 monthly fee 0.05% APY No minimum balance requirement to earn interest

Next steps: Do I need a NOW account?

NOW accounts are no longer the only way to get both interest and accessibility for your cash deposits. Here are some other ways to get the best of both worlds without dealing with the seven days’ notice of withdrawal that comes with NOW accounts.

• Interest-bearing checking account
• Money market account
• High-yield savings account
• Cash management account

Before you apply for a NOW account, make sure you understand both the perks and pitfalls and take time to shop around and compare multiple options to find the best fit for you.