Definition
A Negotiable Order of Withdrawal (NOW) account is a type of bank account that allows the deposit holder to earn interest on the money deposited while providing easy access to funds through checks or drafts. Similar to checking accounts, NOW accounts allow account holders to withdraw funds at any time, but unlike standard checking accounts, these can earn interest on the deposit balances. They are commonly used by individuals, businesses, and other entities seeking both liquidity and growth on their funds.
Key Features
- Interest-Earning: NOW accounts typically offer interest on the deposited funds, albeit usually at a lower rate than other savings instruments.
- Check-Writing Capability: Account holders can write checks or drafts against the balance, similar to a traditional checking account.
- Minimum Balance Requirements: Many NOW accounts require maintaining a minimum balance to avoid fees and ensure interest accrual.
- Access and Convenience: Offers the convenience of easy access to funds for daily transactions and bill payments.
Examples
- Personal NOW Account: Individual account holders often use these to manage their everyday expenses while earning modest interest.
- Business NOW Account: Small businesses or non-profits might utilize NOW accounts to manage their operational funds while gaining a small return on their balance.
Frequently Asked Questions (FAQs)
What is the difference between a NOW account and a regular checking account?
A regular checking account typically does not earn interest on the balance, whereas a NOW account earns interest, albeit often at a lower rate compared to savings accounts.
Are there any restrictions on NOW accounts?
Yes, some financial institutions may impose restrictions such as minimum balance requirements and limits on the number of withdrawals or check transactions per month to maintain the account.
Can businesses open NOW accounts?
Yes, businesses, particularly small ones, as well as non-profit organizations, can open NOW accounts to manage their day-to-day transactions while earning interest on their deposits.
How does the interest rate on a NOW account compare to other accounts?
The interest rate on NOW accounts is generally lower than that of savings accounts, money market accounts, or certificates of deposit (CDs).
Are NOW accounts insured?
Yes, NOW accounts are typically insured by the Federal Deposit Insurance Corporation (FDIC) up to certain limits, offering protection on the funds deposited.
Related Terms
- Demand Deposit Account (DDA): A DDA is a checking account that allows funds to be withdrawn on demand without any advance notice.
- Savings Account: A deposit account that offers a more competitive interest rate compared to NOW accounts, primarily aimed at saving rather than everyday transactions.
- Money Market Account: An interest-bearing account that typically requires higher minimum balances but offers higher interest rates and check-writing privileges.
- Certificate of Deposit (CD): A time-deposit account with a fixed interest rate and maturity date, generally offering higher interest than NOW accounts.
- Interest-Bearing Checking Account: Another type of checking account that allows you to earn interest on your balance.
Online References
- Federal Deposit Insurance Corporation (FDIC) - Consumer Resources
- Investopedia - Negotiable Order of Withdrawal (NOW) Account
- The Truth About Banking - Understanding NOW Accounts
Suggested Books for Further Studies
- “The Basics of Banking” by Dr. Donovan S. Momah
- “Personal Finance For Dummies” by Eric Tyson
- “Modern Banking” by Shelagh Heffernan
- “The Complete Guide to Personal Finance: For Teenagers and College Students” by Tamsen Butler
Fundamentals of Negotiable Order of Withdrawal (NOW): Banking Basics Quiz
Thank you for learning about Negotiable Order of Withdrawal (NOW) accounts. These accounts offer a blend of benefits from both checking and savings accounts, providing liquidity and interest earnings for personal and business financial management.
