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

A Negotiable Order of Withdrawal (NOW) account is a type of interest-bearing deposit account available to individuals, certain nonprofits, and governmental units. It allows the account holder to write checks or make withdrawals on demand, much like a checking account, while earning interest on the deposited funds. The distinguishing feature of a NOW account is that it blends some characteristics of checking and savings accounts, combining check-writing privileges with interest payments, subject to specific regulatory conditions.

NOW accounts emerged in response to historical banking regulations that prohibited commercial banks from offering interest on demand deposits. These accounts provided a workaround, allowing institutions to pay interest on consumer checking-like accounts without violating the federal ban that existed until 2011. Although regulatory changes have since made the distinction between NOW accounts and other interest-bearing accounts less critical, the term persists in banking and financial literature.

Historical Background and Regulatory Context

The origins of NOW accounts trace back to the early 1970s when federal regulations, specifically Regulation Q under the Glass-Steagall Act, prohibited banks from paying interest on demand deposits. This restriction created a competitive imbalance between banks and thrift institutions (such as savings and loan associations), which were not subject to the same limitations and could offer interest-bearing accounts with withdrawal privileges.

To compete, some institutions—beginning in Massachusetts and New Hampshire—developed the NOW account, which legally circumvented the interest prohibition by structuring the account as a type of savings deposit that allowed for check-like withdrawals. Because these withdrawals were considered negotiable orders of withdrawal rather than traditional checks, they were not classified as demand deposits under Regulation Q.

The Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA) later expanded the authorization of NOW accounts nationwide and gradually phased out interest rate ceilings. By July 1, 2011, the Dodd-Frank Act fully repealed the prohibition on paying interest on demand deposits, rendering the original legal distinction behind NOW accounts largely obsolete. Nevertheless, banks continue to offer NOW accounts as a product category, particularly to consumers, nonprofits, and government entities.

Functional Characteristics

A NOW account operates similarly to a standard checking account. The account holder can access funds at any time, write checks, make electronic transfers, and use debit card services if offered. The primary difference lies in the account's legal classification and the institutions’ ability to impose certain conditions, such as requiring prior notice for large withdrawals—although this is rarely enforced.

Interest is typically paid monthly or quarterly, depending on the institution’s policies. However, the interest rate on NOW accounts tends to be modest, often lower than that of savings or money market accounts. Some banks may impose minimum balance requirements to avoid monthly maintenance fees or to qualify for interest accrual.

Only certain types of depositors are eligible for NOW accounts. Under federal rules, they are available to individuals (including sole proprietorships), nonprofit organizations operated primarily for religious, philanthropic, educational, or similar purposes, and public funds. Corporations and partnerships operated for profit generally do not qualify.

Comparison to Other Deposit Accounts

Compared to regular checking accounts, a NOW account pays interest, making it appealing to depositors who want liquidity and modest earnings on idle balances. In contrast, a traditional checking account does not pay interest but may offer more flexibility in terms of fees or access features.

Savings accounts typically offer higher interest rates but restrict the number of withdrawals or transfers per month. While these limits were loosened by regulatory changes during the COVID-19 pandemic, many banks still impose limits as part of their terms. NOW accounts, by design, are meant to be more transactional and thus support frequent withdrawals and payments.

Money market accounts may seem similar to NOW accounts because they also combine interest earnings with limited check-writing privileges. However, money market accounts often require higher minimum balances and may provide tiered interest rates based on the balance held.

Declining Relevance and Current Use

Following the repeal of Regulation Q’s prohibition on interest-bearing checking accounts, the practical distinction between NOW accounts and regular interest-bearing checking accounts has diminished. Many financial institutions now market interest-bearing checking accounts under various names, without emphasizing the "NOW" terminology.

Still, some banks and credit unions continue to offer and refer to these accounts using the NOW designation, especially in regions or among customer bases familiar with the term. Additionally, the structure remains relevant for regulatory and accounting purposes, as some financial institutions still classify deposit types based on historical definitions.

The Bottom Line

A Negotiable Order of Withdrawal (NOW) account is an interest-bearing checking account historically created to comply with federal restrictions that no longer exist. While functionally similar to modern interest-bearing checking accounts, NOW accounts retain unique eligibility and legal classifications. Their significance has waned in the post-Regulation Q era, but they remain a recognized type of account for individuals, nonprofits, and government entities who want interest payments along with transactional access to funds.