A NOW account, short for Negotiable Order of Withdrawal account, is an interest-bearing bank account that works like checking: you can write checks, use a debit card, pay bills online, and make unlimited transfers, all while earning interest on your balance. The catch is eligibility. Individuals, nonprofits, and government entities can open one; for-profit businesses cannot.
How a NOW Account Works Day to Day
In practice, a NOW account feels like any other checking account. There’s no cap on the number of monthly transactions, you get a debit card and checks, and the bank credits interest on whatever balance you hold. Rates are modest. You’ll earn more than a plain non-interest checking account and less than a high-yield savings account or a certificate of deposit. The appeal is the combination: full checking flexibility without giving up interest altogether.
One technicality sits in the account agreement. Federal regulation lets the bank require at least seven days’ written notice before you withdraw or transfer funds from a NOW account.1eCFR. 12 CFR Part 204.2 – Definitions Banks almost never enforce it, and your money is available on demand in practice. The provision is what legally separates a NOW account from a true demand deposit account, and it’s standard boilerplate rather than something to plan around.
Who Can Open a NOW Account
Federal rules limit NOW accounts to specific categories of holders. This is the biggest practical difference between a NOW account and a regular interest-bearing checking account, which any customer can open.
Individuals and Sole Proprietors
Any individual qualifies, no matter how the money is used. That includes personal spending, saving, or running a side business. A sole proprietor can hold a NOW account in a personal name or under a “doing business as” trade name, because the business and the individual are legally the same entity.2eCFR. 12 CFR 204.130 – Eligibility for NOW Accounts
Nonprofits and Government Entities
Nonprofits operated primarily for religious, charitable, educational, political, or similar purposes qualify.2eCFR. 12 CFR 204.130 – Eligibility for NOW Accounts So do government entities at every level, from federal agencies down to local municipalities and U.S. territories.3eCFR. 12 CFR 204.130 – Eligibility for NOW Accounts
Trusts and Fiduciary Accounts
Funds held in a fiduciary capacity, whether by an individual trustee or a corporate trust department, can go into a NOW account as long as every beneficiary would independently qualify to hold one. The same rule covers pension funds, escrow accounts, and security deposits held under agency agreements.2eCFR. 12 CFR 204.130 – Eligibility for NOW Accounts A revocable living trust with individual beneficiaries qualifies; a trust that benefits a for-profit corporation does not.
For-Profit Businesses Are Excluded
Corporations, partnerships, LLCs, and other profit-seeking entities cannot open NOW accounts.2eCFR. 12 CFR 204.130 – Eligibility for NOW Accounts These businesses use traditional business checking accounts instead. Since banks can now pay interest on any checking account, the exclusion carries less weight than it once did, but it remains on the books.
Fees, Minimum Balances, and Taxes
NOW accounts usually require higher minimum balances than standard checking, often in the $1,000 to $2,500 range. Fall below that threshold and the bank charges a monthly maintenance fee, commonly $10 to $15. At $15 a month, that’s $180 a year in fees, which will wipe out the interest and then some. This is where most people lose the plot on NOW accounts: the interest rate looks like a perk, but if your balance dips regularly, a free checking account that pays nothing leaves you ahead.
Opening deposits are lower, typically $25 to $100 depending on the bank.
Interest is taxable income. The bank sends IRS Form 1099-INT if you earn more than $10 in a calendar year, 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
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 is a separate ownership category from an individual account at the same bank, so a married couple can have well over $250,000 insured across categories. Credit unions offer a functionally identical product, sometimes called a share draft account, insured by the NCUA at the same $250,000 limit.6NCUA. Share Insurance Coverage
How NOW Accounts Compare to Other Deposit Accounts
The differences among NOW accounts and their closest relatives come down to transaction freedom, interest rates, and eligibility.
Standard Checking Accounts
A regular checking account, technically a demand deposit account, historically paid no interest. The Dodd-Frank Act repealed that prohibition in 2011, and banks can now pay interest on any checking account.7Federal Register. Prohibition Against Payment of Interest on Demand Deposits Many banks now offer interest-bearing checking to anyone, including businesses. The gap between a standard 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 usually 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 removed 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 check the fine print. Savings accounts also lack check-writing and debit card access, so they don’t work for day-to-day spending.
Money Market Accounts
Money market accounts sit between checking and savings. They offer check-writing and often pay higher interest than a NOW account, though they may require larger minimum balances and some banks limit the number of checks per month. For a larger balance you don’t need to touch often, a money market account will generally earn more. For a full-service checking account that also pays some interest, a NOW account (or a modern interest-bearing checking account) fits better.
Why NOW Accounts Still Exist
NOW accounts were invented to work around a 1933 law that barred banks from paying interest on checking deposits. Congress authorized them nationwide 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 the Dodd-Frank Act repealed the interest prohibition entirely.7Federal Register. Prohibition Against Payment of Interest on Demand Deposits Many banks still offer NOW accounts. Some keep the product because legacy customers already have the accounts; others use the label to market interest-bearing checking to individuals and nonprofits as a distinct product. The eligibility restrictions and the seven-day notice right remain in Regulation D.
For most individual depositors, the difference between a NOW account and a modern interest-bearing checking account is more branding than substance. What matters when choosing an account is the rate, the minimum balance, and the fee schedule at your specific bank, not whether the account is technically classified as a NOW account or a demand deposit.