A NOW account, short for Negotiable Order of Withdrawal account, is an interest-bearing bank account that functions like checking: you can write checks, use a debit card, pay bills online, and make unlimited transfers, while earning interest on your balance. The catch is who’s allowed to open one. Federal rules limit NOW accounts to individuals, nonprofits, and government entities. For-profit businesses can’t have them.
How a NOW Account Works
Day to day, a NOW account behaves like any checking account. There’s no cap on the number of monthly transactions, and you get the usual tools: checks, a debit card, online bill pay, and electronic transfers. What sets it apart is that the bank pays interest on your balance.
The name refers to the payment instrument itself, which is technically a draft rather than a check. That legal distinction is the reason these accounts exist at all, and it’s why the account agreement includes a quirk most holders never notice.
Interest rates on NOW accounts are usually modest. You’ll earn more than a standard non-interest checking account but less than a high-yield savings account or a certificate of deposit. The appeal is the combination: checking-account flexibility with some interest on top. If you tend to keep a sizable balance in checking, even a small rate adds up.
Who Can Open a NOW Account
Eligibility is the biggest practical difference between a NOW account and a regular interest-bearing checking account.
Individuals and Sole Proprietors
Any individual can open a NOW account, whatever they plan to use it for: personal spending, savings, or running a side business. A sole proprietor can hold one in their personal name or under a “doing business as” trade name, because the business and the individual are legally the same entity.1eCFR. 12 CFR 204.130 – Eligibility for NOW Accounts
Nonprofits and Government Entities
Nonprofit organizations operated primarily for religious, charitable, educational, political, or similar purposes qualify.1eCFR. 12 CFR 204.130 – Eligibility for NOW Accounts Government entities are eligible at every level, from federal agencies down to local municipalities and U.S. territories.2eCFR. 12 CFR 204.130 – Eligibility for NOW Accounts
Trusts and Fiduciary Accounts
Funds held in a fiduciary capacity can go in a NOW account as long as every beneficiary of the trust would independently qualify. A revocable living trust with individual beneficiaries works. A trust that benefits a for-profit corporation does not.1eCFR. 12 CFR 204.130 – Eligibility for NOW Accounts
For-Profit Businesses Cannot Open One
Corporations, partnerships, LLCs, and other entities organized to generate profit are shut out.1eCFR. 12 CFR 204.130 – Eligibility for NOW Accounts Those businesses use traditional business checking accounts. Since the Dodd-Frank Act allowed interest on all checking accounts, this restriction matters less than it once did, but it remains on the books.
The Seven-Day Notice Rule
Buried in every NOW account agreement is a legal technicality that surprises most holders. Under federal regulation, your bank reserves the right to require at least seven days’ written notice before you withdraw or transfer funds.3eCFR. 12 CFR Part 204.2 – Definitions In practice, banks almost never enforce this. You’ll withdraw your money on demand just like any other checking account. The provision is what legally separates a NOW account from a true demand deposit account, and if you spot the language in your contract, it’s standard boilerplate rather than something to worry about.
Fees, Minimum Balances, and Taxes
NOW accounts often require higher minimum balances than standard checking accounts, commonly in the $1,000 to $2,500 range. Fall below the threshold and the bank typically charges a monthly maintenance fee in the $10 to $15 range. At $15 a month, that’s $180 a year, which will wipe out the interest you earned and then some. This is where most people miscalculate the account: the interest rate looks like a perk, but if your balance dips often, a free checking account paying nothing would leave you better off.
Initial deposit requirements to open the account are lower, typically $25 to $100 depending on the bank.
Interest earned on a NOW account is taxable income. Your bank will send IRS Form 1099-INT if the interest credited during the year exceeds $10, and you’re required to report all interest income on your return whether or not you receive a form.4Internal Revenue Service. About Form 1099-INT, Interest Income
Deposit Insurance on NOW Accounts
NOW accounts at FDIC-insured banks are covered up to $250,000 per depositor, per bank, for each ownership category.5FDIC.gov. Understanding Deposit Insurance A joint NOW account has separate coverage from an individual NOW account at the same bank, so a married couple can have well over $250,000 insured by combining ownership categories.
Credit unions offer a functionally identical product, sometimes called a share draft account, insured by the National Credit Union Administration at the same $250,000 per-depositor limit.6NCUA. Share Insurance Coverage
How NOW Accounts Compare to Other Accounts
Standard Checking
A regular checking account, technically a demand deposit account, historically paid no interest. The Dodd-Frank Act repealed that prohibition in 2011, so banks can now pay interest on any checking account.7Federal Register. Prohibition Against Payment of Interest on Demand Deposits Many banks offer interest-bearing checking to anyone, including businesses. The gap between a modern interest-bearing checking account and a NOW account has narrowed considerably, though the NOW account keeps its separate eligibility rules and the seven-day notice provision.
Savings Accounts
Savings accounts typically pay higher rates than NOW accounts but trade away transaction flexibility. Before 2020, federal rules capped savings accounts at six convenient withdrawals or transfers per month. The Federal Reserve eliminated that cap in April 2020 by amending Regulation D.8Federal Register. Regulation D: Reserve Requirements of Depository Institutions Some banks still enforce their own contractual limits, so read the fine print. Savings accounts also lack check-writing and debit card access, which makes them impractical for daily spending.
Money Market Accounts
Money market accounts sit between checking and savings. They allow check-writing and often pay more interest than a NOW account, but they may require larger minimum balances, and some banks limit the number of checks you can write monthly. For a larger balance you don’t need to touch often, a money market account usually earns more. For a full-service checking account that also pays some interest, a NOW account or a modern interest-bearing checking account is the better fit.
Why NOW Accounts Still Exist
NOW accounts were invented to get around a 1933 law that barred banks from paying interest on checking deposits. A Massachusetts banker created the workaround in the early 1970s, and Congress authorized the accounts nationwide starting at the end of 1980.9Wikipedia. Negotiable Order of Withdrawal Account For nearly three decades, they were the only way to earn interest on money you could spend freely.
That changed in 2011, when Dodd-Frank repealed the interest prohibition.7Federal Register. Prohibition Against Payment of Interest on Demand Deposits Banks could now pay interest on any checking account. Even so, many banks still offer NOW accounts. Some keep the product because legacy customers already hold them. Others use the NOW label to market interest-bearing checking to individuals and nonprofits as a distinct product. The regulatory framework, including the eligibility restrictions and the seven-day notice right, remains in Regulation D.
For most individual depositors today, the difference between a NOW account and a modern interest-bearing checking account is more branding than substance. The rates, fees, and minimum-balance rules at your specific bank matter far more than whether the account is technically classified as a NOW account or a demand deposit.