Key takeaways
– A NOW account (Negotiable Order of Withdrawal account) was an interest‑earning demand deposit (checking) account that allowed customers to write checks while earning interest.
– NOW accounts originated as a legal workaround to Regulation Q, which banned interest on demand deposits; they became widespread in the 1970s–1980s and resurfaced as “Super NOW” accounts with higher rates.
– The Dodd‑Frank Act repealed Regulation Q in 2011, removing the regulatory advantage of NOW accounts; banks now routinely may pay interest on checking accounts, so the “NOW” label is largely historical.
– Today, consumers should compare modern interest‑bearing checking accounts and alternatives (high‑yield savings, MMAs, CDs, Treasury bills) by APY, fees, requirements, liquidity, and insurance.
What is a NOW account?
A Negotiable Order of Withdrawal (NOW) account is an interest‑bearing demand deposit account that functions like a checking account: you can write drafts (checks) or use a debit card, but the account legally paid interest. Historically, NOW accounts sometimes included a seven‑day notice period the bank could invoke before allowing withdrawals; in practice that rarely impeded normal checking use.
Why NOW accounts existed (brief history)
– Regulation Q (established after the Great Depression) prohibited commercial banks from paying interest on demand deposit accounts (checking). To provide customers an interest option without violating Reg Q, financial institutions and innovators introduced NOW accounts in the 1970s. (Ronald Haselton is credited with developing the concept.)
– Congress permitted NOW accounts in certain states in the mid‑1970s and expanded them nationwide by 1980. A five percent interest ceiling was removed in 1986, enabling higher rates and the emergence of “Super NOW” accounts.
– The Dodd‑Frank Act (2010) led to the Federal Reserve’s final rule repealing Regulation Q in 2011, allowing banks to pay interest on demand deposits outright and erasing the legal need for separate “NOW” accounts. (Federal Reserve; Federal Reserve Bank of St. Louis)
NOW accounts vs. demand deposit accounts
– Demand deposit accounts: funds can be withdrawn on demand without advance notice. Historically, traditional demand deposit (checking) accounts could not earn interest because of Reg Q.
– NOW accounts: a form of demand deposit that explicitly paid interest. The main practical historical difference was the interest payment and the potential short advance‑notice period; otherwise they were used like checking accounts.
– Since Reg Q’s repeal, most checking accounts that pay interest are simply labeled “interest‑bearing checking” rather than NOW accounts; the functional distinction has disappeared.
Why NOW accounts fell out of use
– The repeal of Regulation Q removed the regulatory prohibition on interest‑paying checking accounts. Banks no longer needed the special NOW account structure to offer interest on checking, so the term “NOW account” largely became obsolete. Today’s banks simply design interest‑bearing checking or hybrid accounts with features and requirements that fit their product strategy. (Federal Reserve)
Are NOW accounts banned?
– No—NOW accounts are not banned. They became unnecessary and uncommon after Reg Q’s repeal in 2011. The term remains primarily a historical descriptor.
Practical implications for consumers today
If you want to earn interest on money that remains highly liquid (usable like a checking account), treat “NOW account” as part of the history and evaluate current interest‑bearing checking and other liquid products using these practical steps.
How to choose an interest‑bearing checking account — step‑by‑step
1. Clarify your priorities
– Immediate liquidity and check/debit access with some yield?
– Highest possible yield while keeping easy access?
– Fee avoidance and simplicity?
2. Compare effective yield (APY) and how interest is calculated
– Check the annual percentage yield (APY) and compounding frequency (daily/ monthly).
3. Check account requirements
– Minimum balance to earn APY, number of required debit card transactions, direct deposit or bill pay requirements, or other activity conditions to avoid fees or qualify for advertised APY.
4. Review fees and fee waivers
– Monthly maintenance fee, ATM fees, out‑of‑network ATM reimbursement, overdraft charges. See whether fees can wipe out interest earned.
5. Look at access and convenience
– Branch/ATM network, mobile app features, check-writing, transfers, and holds on deposited checks.
6. Verify deposit insurance and safety
– Confirm FDIC (banks) or NCUA (credit unions) coverage and how much is insured per depositor, per institution.
7. Consider promotional offers and their terms
– Introductory APYs or bonuses often revert to lower rates or have balance caps—read the fine print.
8. Estimate after‑fee yield
– Subtract expected monthly fees from annual interest to compute net return.
9. Read the account agreement
– Look for potential hold periods, transaction limits, and how interest rates can change.
10. Open the account and set up monitoring
– Provide identification and funding, set up direct deposit if required, and monitor initial statements for holds or unexpected fees.
How to open (or switch to) an interest‑bearing checking account — practical steps
1. Gather documents: government ID, Social Security number (or taxpayer ID), proof of address, and funding source (bank routing and account number or check).
2. Compare providers: use bank websites, aggregator sites, and APY comparison tools.
3. Apply online or in‑branch: complete application, e‑sign agreements, and fund the account.
4. Meet any qualification requirements: set up direct deposit, meet minimum debit/credit card usage, or maintain required balances.
5. Close old accounts properly: transfer automatic payments and direct deposits, leave a small balance until all automatic withdrawals clear, then formally close and get confirmation.
6. Keep records: save account opening/closing confirmations and monitor the first two statements.
Alternatives to interest‑bearing checking and when to use them
– High‑yield savings accounts: higher APYs, very liquid but may limit certain transaction types; good for emergency funds.
– Money market accounts (MMAs): typically higher rates plus limited check access; good for flexible savings with some checkwriting.
– Certificates of deposit (CDs): higher yields for locked funds; choose if you don’t need immediate access.
– Treasury bills or short‑term Treasury funds: low risk, often competitive yields for near‑cash holdings.
Choose based on your need for liquidity, the timeframe for using funds, desired yield, and tolerance for minimum balances and fees.
Tax and regulatory notes
– Interest from NOW accounts or any interest‑bearing checking account is taxable as ordinary income for federal tax purposes (and usually for state taxes unless exempt).
– Confirm FDIC/NCUA insurance rules: standard coverage is $250,000 per depositor, per insured bank, per ownership category.
Common pitfalls to avoid
– Focusing only on headline APY without accounting for fees and qualification requirements.
– Missing the fine print on promotional rates and balance caps.
– Assuming all checking accounts allow unlimited free ATM use—watch reimbursements and networks.
– Overlooking the liquidity needs: higher APY may come with reduced immediate access (holds, transfer delays, transaction limits).
Bottom line
A NOW account was a historically important interest‑paying checking account that emerged as a workaround to Regulation Q. After Regulation Q’s repeal in 2011, the legal need for NOW accounts disappeared and modern banks offer interest‑bearing checking products directly. For consumers today, the practical task is to evaluate current interest‑bearing checking accounts and close substitutes (high‑yield savings, MMAs, CDs, short‑term Treasuries) using APY, fees, requirements, liquidity, and insurance as the guiding criteria.
Sources and further reading
– Investopedia. “NOW Account.” (source URL provided by user)
– Federal Reserve. “Federal Reserve Issues Final Rule To Repeal Regulation Q, Which Prohibited the Payment of Interest on Demand Deposits.” (Fed press release on the Regulation Q repeal)
– Federal Reserve Bank of St. Louis. “NOW Accounts” and “NOW Accounts Go Nationwide” (historical context and timelines).
– Federal Reserve Bank of St. Louis. “Requiem for Regulation Q: What It Did and Why It Passed Away.”
– Frodin, Joanna H., and Richard Startz. “The NOW Account Experiment and the Demand for Money.” Rodney L. White Center for Financial Research, The Wharton School (working paper).
– The New York Times. “BUSINESS PEOPLE: Haselton Brothers’ Role in Banking Innovations” (background on the origin of NOW accounts).
If you want, I can:
– Compare current interest‑bearing checking offers from several major banks/credit unions (rate, fees, requirements), or
– Provide a one‑page checklist you can use when opening or switching accounts. Which would you prefer?