Before 2008, traditional checking accounts did not yield interest, prompting individuals seeking returns on their bank deposits to explore alternatives such as Negotiable Order of Withdrawal (NOW) accounts. NOW accounts served as a blend of checking and savings account features, allowing account holders to earn interest, albeit at lower rates between 0.01% and 0.20% APY. They include benefits like debit cards and ATM access, but they are rarely found across large banks or credit unions today, diminishing their appeal in favor of higher-yield options. With the evolution of the banking landscape, understanding NOW accounts’ distinctions and historical significance remains relevant, especially in considering the variety of offerings available in today’s financial environment.
NOW accounts are structured to provide depositors with both liquidation ease and some interest earnings. The primary operational feature of these accounts is the ability to write drafts, akin to checks, with guaranteed funds for payment without needing the traditional delay associated with standard checking. A notable characteristic is that, theoretically, account holders must give banks at least a seven-day notice before withdrawals or transfers, while this condition is seldom enforced. Eligibility is limited, permitting only individuals, sole proprietors, or nonprofit organizations to open these accounts, which are primarily offered by mutual savings banks and commercial banks.
For those in search of even better interest rates, Super NOW accounts are available, potentially yielding higher returns compared to standard NOW accounts but demanding a greater minimum balance. For example, while Flora Bank & Trust requires a $1,000 minimum for their standard NOW account, a Super NOW account necessitates a $2,500 opening deposit. Unfortunately, interest rate disclosures are often omitted, leaving potential depositors in the dark about specific earning prospects. This range of accounts exemplifies how banks tried to adapt to customer needs, but as competition increased and technological advances emerged, NOW accounts became increasingly obsolete.
The origins of NOW accounts can be traced back to regulatory changes within the banking industry over the decades. In 1933, the Banking Act prohibited banks from paying interest on demand deposit accounts, which were defined as accounts from which funds could be freely withdrawn without prior notice. This legislation aimed to stabilize banks and prevent them from failing due to customer withdrawals. The Omnibus Banking Act of 1980 allowed banks to introduce NOW accounts to attract deposits by offering interest, and by 1986, they could offer unlimited interest payments. However, the repeal of Regulation Q in 2008 marked a significant turning point wherein banks could now pay interest on traditional demand accounts, effectively rendering NOW accounts redundant.
Demand deposit accounts (DDAs), which encompass both checking and savings accounts, bear some similarities to NOW accounts but importantly differ in their operational capacities. DDAs permit withdrawals without notice, offering more appeal for immediate access to funds. Historically equated to checking accounts, DDAs are now a broader category that includes money market accounts as well. In contrast to NOW accounts, which can enforce withdrawal notices, demand deposit accounts prioritize convenience without such stipulations. Both account types are typically insured by the FDIC up to $250,000, but competitive interest rates are a common shortcoming across both varieties.
Currently, the prevalence of NOW accounts is limited, primarily offered by a small selection of mutual savings banks. Institutions like Capital Bank and Napoleon State Bank provide low-interest rates in conjunction with specific minimum balance requirements. For example, Capital Bank’s NOW account has a minimum opening deposit of $1,000 with a yield of 0.02% APY, while Napoleon State Bank offers a Super NOW account with a similar opening amount and more competitive 0.10% APY. Other contenders such as Flora Bank & Trust and Investment Savings Bank maintain a focus on NOW accounts, although with minimal transparency on their interest rates. These sparse offerings underscore the diminishing relevance of NOW accounts in a financial landscape increasingly oriented towards higher returns and more efficient services, leaving consumers with better alternatives today.
