Negotiable Order of Withdrawal account

In the United States, a Negotiable Order of Withdrawal account (NOW account) is a deposit account that pays interest, on which checks may be written.^[1]

They are structured to comply with Regulation Q, which prohibits interest on checking accounts: NOW accounts are interest-bearing, and checks may be written on them, but legally they are not interest-bearing checking accounts.

History

In the early 1970s, smaller banks in Massachusetts created the Negotiable Order of Withdrawal account to compete with the larger commercial banks. The sesquipedalian name comes from Regulation Q, which prohibits interest on checking accounts. Payment law meant that checks were negotiable instruments so some banks sought the permission to allow depositors the ability to issue negotiable withdrawals that can be given to a third party. Once approved, the banks could pay interest because they were not technically checking accounts. Authorized on a national scale in 1981, these accounts typically pay a relatively small return, although some banks offer high-interest NOW accounts in order to attract depositors' assets.

NOW accounts are considered checkable deposits, and are counted in the Fed's M1 definition of the money supply. As such, they are considered liabilities from the bank's perspective.^[1]

See also

• Money market deposit account

References

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