Negotiable Order of Withdrawal (NOW) Account

A Negotiable Order of Withdrawal (NOW) Account is a type of bank account that cleverly blends the features of a checking and a savings account. Think of it as a checking account that pays you interest. Offered by banks and other depository institutions, it allows you to write an unlimited number of checks (the “negotiable orders of withdrawal”) to pay bills or make purchases, just like a standard checking account. However, unlike its traditional, non-interest-earning cousin, the NOW account lets your cash balance generate a modest return. This financial hybrid was a game-changer when it first appeared, challenging the long-standing rule in the United States that prohibited banks from paying interest on demand deposits. It was designed to give everyday consumers a better deal, allowing their transactional cash to work for them, even if just a little. For this convenience, banks often require a minimum balance to be maintained to earn interest or avoid monthly service fees.

The story of the NOW account is a classic tale of financial innovation pushing against regulatory boundaries. For decades, a piece of U.S. federal law known as Regulation Q prevented banks from paying interest on checking accounts. The idea was to limit competition among banks and ensure stability, but for consumers, it meant their everyday cash sat idle. In 1972, a savvy savings bank in Massachusetts found a legal loophole. Since it wasn't technically a “commercial bank,” it argued it could offer an interest-bearing account with withdrawal slips that functioned exactly like checks. These were dubbed “Negotiable Orders of Withdrawal,” and the NOW account was born. The concept was wildly popular. After a few years of regional success and legal wrangling, the U.S. Congress passed the Consumer Checking Account Equity Act of 1980, officially authorizing all depository institutions nationwide to offer NOW accounts. This act leveled the playing field and ushered in a new era of banking products for individuals and non-profit organizations.

NOW accounts are defined by a few core characteristics that set them apart from other deposit accounts.

• Interest-Bearing: This is their star feature. Your balance earns interest, typically at a rate comparable to or slightly lower than a standard savings account. While not a high-yield investment, it helps your cash keep better pace with inflation.
• Unlimited Transactions: You can write as many checks or make as many debit card payments as you need without penalty. This provides the full liquidity and convenience of a standard checking account for daily expenses.
• Eligibility Rules: Historically, NOW accounts were available only to individuals, certain non-profit organizations, and governmental units. For-profit corporations were generally excluded and had to use regular business checking accounts.
• Minimum Balance Requirements: This is the common trade-off. To avoid monthly fees or to qualify for the advertised interest rate, many banks require you to keep a certain amount of money in the account at all times.

Choosing the right account for your cash can feel confusing. Here’s a simple breakdown of how a NOW account stacks up against the alternatives.

The difference is simple: interest. A NOW account pays it; a traditional checking account does not. The trade-off is that a NOW account is more likely to have a minimum balance requirement or a monthly fee if that balance isn't met. A “free” checking account might be better if you typically keep a very low balance.

Here, the key difference is accessibility. A NOW account is built for frequent transactions. A savings account is designed for saving, and while regulations like Regulation D have been relaxed, many banks still impose limits on the number of convenient withdrawals you can make per month. In exchange for less flexibility, a savings account might offer a slightly higher interest rate.

This is a closer comparison. A money market account also pays interest and often comes with a debit card and limited check-writing privileges. MMAs typically offer a higher interest rate than NOW accounts but, like savings accounts, may limit the number of transactions you can make each month. They often require a higher minimum balance as well.

For a value investor, a NOW account isn't an “investment” in the way a stock or bond is. Instead, it's a highly efficient tool for cash management. A core tenet of value investing is to keep some “dry powder”—cash on the sidelines, ready to deploy when you spot an undervalued company or a market opportunity. This cash needs to be safe and instantly accessible. A NOW account is an excellent home for it. It provides superior liquidity to a savings or money market account while still allowing your cash to earn a small return, fighting off some of the erosive effects of inflation. While the interest earned won't make you rich, it embodies the value investor's mindset: make every dollar work efficiently. Letting your operational cash sit in a zero-interest account is an unnecessary drag on your overall financial performance. A NOW account is a simple, smart optimization for the cash component of your portfolio, ensuring it’s both productive and ready for action at a moment's notice.