Discover the Benefits of a Negotiable Order of Withdrawal (NOW) Account
A Negotiable Order of Withdrawal Account is an interest-earning demand deposit account allowing customers to write drafts against deposited money. Commonly referred to as a NOW Account, it merges the accessibility of a checking account with the benefits of earning interest.
Key Takeaways
- Prior to the Dodd-Frank Act, NOW Accounts were a popular choice for interest-earning demand deposits.
- NOW Accounts provided a strategic option for holding liquid funds.
- The repeal of Regulation Q via Dodd-Frank allowed interest on demand deposit accounts, thus impacting NOW Accounts.
Understanding Negotiable Order of Withdrawal Accounts
Those seeking to optimize returns on liquid funds historically considered several banking choices: interest-bearing checking accounts, high-yield savings accounts, money market accounts, and certificates of deposit, predominantly searched for in commercial banks, mutual savings banks, and savings-and-loan associations.
Up until 2011, NOW Accounts stood out as an option for getting some returns on idle cash. Before the 2010 Dodd-Frank Act, banking distinctions classified
Related Terms: Checking Accounts, Money Market Accounts, Savings Accounts, Certificates of Deposit.
References
- The Federal Reserve. “Federal Reserve Issues Final Rule to Repeal Regulation Q, Which Prohibited the Payment of Interest on Demand Deposits”.
- Federal Reserve Bank of St. Louis. "‘NOW’ Accounts".
- Federal Reserve Bank of St. Louis. “NOW Accounts Go Nationwide”, Page 1.
- Federal Reserve Bank of St. Louis. “Requiem for Regulation Q: What It Did and Why It Passed Away”, Page 31.
Get ready to put your knowledge to the test with this intriguing quiz!
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## What does NOW stand for in the context of financial terms?
- [ ] New Order of Wealth
- [x] Negotiable Order of Withdrawal
- [ ] Non-Operational Withdrawal
- [ ] Net Order of Withdrawals
## What is a key feature of a Negotiable Order of Withdrawal (NOW) account?
- [x] It allows for interest to be earned on the account balance
- [ ] It does not permit any withdrawals
- [ ] It only allows withdrawals after a set period
- [ ] It requires a specific term length or maturity period
## Who is eligible to open a NOW account?
- [x] Individuals and certain non-profits
- [ ] Only individuals under 18
- [ ] Corporations
- [ ] Sole proprietorships only
## A NOW account combines features of which two types of financial products?
- [ ] Certificates of Deposit and Money Market Accounts
- [x] Savings Accounts and Checking Accounts
- [ ] Credit Cards and Personal Loans
- [ ] Mutual Funds and Stocks
## What regulatory stipulation is often applied to NOW accounts?
- [ ] Fixed interest rates
- [ ] Minimum one-year term
- [x] Requirement to give notice before transaction
- [ ] Maximum number of withdrawals per month
## Why might someone choose a NOW account over a standard checking account?
- [ ] Greater limitations on the number of withdrawals
- [x] Ability to earn interest on the deposited amount
- [ ] Mandatory service charges
- [ ] Higher fees for transactions
## When did Congress first authorize NOW accounts?
- [ ] 1965
- [ ] 1980
- [x] 1972
- [ ] 1995
## Which Act allowed institutions nationwide to offer NOW accounts?
- [ ] Glass-Steagall Act
- [x] Depository Institutions Deregulation and Monetary Control Act
- [ ] Dodd-Frank Act
- [ ] Federal Reserve Act
## In what types of institutions can you typically open a NOW account?
- [x] Banks and credit unions
- [ ] Brokerage firms
- [ ] Insurance companies
- [ ] Investment banks
## What is a typical requirement for maintaining a NOW account?
- [ ] No balance requirements
- [ ] Multiple yearly withdrawals
- [x] Minimum balance requirements
- [ ] Only allows deposits from a specific source
