Term
Negotiable order of withdrawal (NOW) account
A BudgetBurrow glossary entry. Scroll down for a plain-English definition and related concepts.
A BudgetBurrow glossary entry. Scroll down for a plain-English definition and related concepts.
A negotiable order of withdrawal (NOW) account is a type of deposit account that allows the account holder to earn interest while retaining the ability to withdraw funds on demand, typically via checks or electronic transfers. Unlike standard demand deposit accounts, NOW accounts require the depositor to give the financial institution the legal right to demand notice before withdrawal, though in practice this notice is rarely enforced. The distinct feature is the combination of check-writing privileges with an interest-bearing structure.
NOW accounts were developed as a response to regulations that restricted banks from paying interest on traditional checking accounts, aiming to provide consumers with interest-earning options for their liquid funds. The concept emerged to offer a compromise between demand deposit account functionality and the desire for yield, addressing the need for more versatile personal and business cash management solutions.
Individuals open a NOW account at a financial institution by making a deposit and agreeing that the institution may require advance notice (typically seven days) before withdrawals, though this right is almost never invoked. Account holders can withdraw funds at any time through checks, debit cards, or electronic transfers. The deposited balance earns interest, which is calculated and credited according to the institution’s policies. Banks may impose minimum balance requirements to maintain the interest features or to avoid fees.
While the essential features are consistent, variations exist based on institution policy, such as tiered interest rates (where higher balances earn more), differences in fees, or minimum required balances. Some accounts target individual consumers, while others may be offered to certain businesses, particularly not-for-profit organizations, who qualify under specific eligibility criteria.
NOW accounts are used when individuals or eligible organizations want to manage operational cash needs—such as payroll, bill payments, or daily expenses—while earning some interest on funds that would otherwise remain idle. They are relevant for financial planning where flexibility and liquidity outweigh the need for maximum yield but interest earnings are still desirable.
An individual maintains a balance of $10,000 in a NOW account, earning an annual interest rate of 0.40%. Over one year, they write checks for monthly expenses totaling $6,000 and make several electronic payments. By year-end, the account accrues approximately $40 in interest, provided the minimum balance requirements were met and all withdrawals were within allowed transaction limits.
Selecting a NOW account directly influences both cash availability and the return on everyday funds. The choice involves trade-offs between obtaining immediate access to money and maximizing interest, affecting overall financial efficiency and opportunity cost, especially in environments where interest rates are low or where liquidity is a priority.
The rarely enforced right to require advance withdrawal notice distinguishes NOW accounts in regulation, but in practice has almost no operational impact. This historical workaround highlights how product design can reflect legal or regulatory constraints more than consumer demand, and how financial products may evolve or become obsolete as underlying rules change.