Understanding NOW Accounts: A Banking Relic of the Past
In today’s banking landscape, earning interest on your deposits is a standard feature of many checking and savings accounts. However, this wasn’t always the case. Prior to 2008, individuals seeking to earn interest on their bank deposits had limited options. One such option was the negotiable order of withdrawal (NOW) account.
What is a NOW Account?
A NOW account is a unique type of bank account that combines features of both checking and savings accounts. These accounts typically come with debit cards and ATM access, allowing users to manage their daily finances. Instead of traditional checks, NOW accounts use drafts, which guarantee the availability of funds for payment. One notable feature of NOW accounts is that banks can require a seven-day notice period before withdrawals or transfers, although this requirement is rarely enforced.
Key Characteristics of NOW Accounts
NOW accounts are only offered by specific types of financial institutions, including mutual savings banks, commercial banks, and lending associations. Additionally, eligibility is limited to individuals, sole proprietors, and nonprofit organizations. Another variation of the NOW account is the Super NOW account, which offers higher interest rates in exchange for maintaining a higher minimum balance.
The History of NOW Accounts
The Banking Act of 1933 prohibited banks from paying interest on demand deposit accounts, leading to the creation of NOW accounts in 1980. The Omnibus Banking Act allowed banks to create NOW accounts that paid interest, attracting customers’ deposits. However, with the repeal of Regulation Q in 2008, banks could pay interest on demand deposit accounts, making NOW accounts largely obsolete.
Comparing NOW Accounts to Demand Deposit Accounts
While NOW accounts share some features with demand deposit accounts (DDAs), there are fundamental differences. DDAs, including checking and savings accounts, allow for withdrawals or transfers without notice. In contrast, NOW accounts can require a notice period, although this is rarely enforced. Both types of accounts are FDIC-insured up to $250,000, but neither typically offers competitive interest rates.
The Current State of NOW Accounts
Today, NOW accounts are no longer a viable option for most depositors. While a few institutions still offer these accounts, they typically come with low interest rates and high minimum balance requirements. For example, Capital Bank offers a NOW account with a 0.02% APY and a $1,000 minimum opening deposit. Flora Bank & Trust offers both NOW and Super NOW accounts, but rates are not disclosed.
What’s Next for Your Savings?
With the decline of NOW accounts, it’s essential to explore alternative options for your savings. High-yield savings accounts, money market accounts, and CDs offer more competitive interest rates and greater flexibility. As you navigate the changing banking landscape, it’s crucial to stay informed about the best options for your financial needs.
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