Definition
A Negotiable Order of Withdrawal (NOW) is a type of deposit account at a financial institution that pays interest and allows the holder to write checks against the funds. The account holder can instruct the bank to pay a certain amount to a specific person or entity, similar to a transaction with a checking account. It differs from other checking accounts as it often requires a minimum balance and earns interest.
Phonetic
The phonetic transcription for the phrase “Negotiable Order of Withdrawal (NOW)” is: nɪˈgoʊʃiəbl ˈɔrər ʌv wɪθˈdrɑːəl (naʊ)
Key Takeaways
- NOW – A Unique Banking Account: A NOW (Negotiable Order of Withdrawal) account is a type of interest-bearing bank account that typically allows account owners to write checks from the deposited money. It combines the characteristics of checking and savings accounts, providing both an avenue for spending and an opportunity for money growth.
- Conditions for Interest: One of the vital features of a NOW account is that it pays interest on deposits. However, banks often set a minimum balance requirement to accrue such interest. If the account balance falls below the set limit, the bank doesn’t pay interest.
- Restrictions and Charges: NOW account transactions are not as flexible as regular checking accounts. Banks may limit the number of transactions that an account holder can make within a specified period before imposing charges. Additionally, banks might charge fees for maintaining NOW accounts, depending on their policies.
Importance
The term Negotiable Order of Withdrawal (NOW) is significant in business/finance primarily because it refers to an account at a bank or other financial institution that allows the holder to write drafts against money held on deposit, while also gaining interest on that deposit. These checking accounts blend the features of savings and checking accounts, providing the benefit of earning interest like a savings account, along with the convenience of check-writing and withdrawal capabilities similar to a checking account. Therefore, NOW accounts can offer a greater degree of flexibility and potentially higher returns for customers, serving as a useful tool in managing personal or business finances.
Explanation
The Negotiable Order of Withdrawal (NOW) account serves as an interest-earning bank account in which the account holder can write checks to withdraw funds. Predominantly used in the United States, these interest-earning accounts combine the benefits of both savings and checking accounts, providing flexibility to the account holder. Unlike savings accounts where the number of withdrawals per month are limited, NOW accounts allow an unlimited number of withdrawals and transfers, just like regular checking accounts.NOW accounts were initially created to circumvent an old regulation that prohibited banks from paying interest on checking accounts. Offering an interest yield, they help the account holder to grow their funds over time while providing immediate access to cash for regular transactions. Individuals or businesses who want to retain the functionality of writing checks, but work towards growing their funds simultaneously are most likely to use NOW accounts. It is this unique balance of accessibility and growth that has made NOW accounts popular amongst various businesses and individuals alike.
Examples
1. Personal Savings Account: In today’s world of personal banking, many people have Negotiable Order of Withdrawal (NOW) accounts as their primary savings account. This gives the account holder the ability to write checks and transfer money from one place to another, while still earning interest. For example, Mr. Johnson receives his monthly salary in this account and uses it for paying his bills, transferring money to other accounts or people, and still earns some interest on his balance.2. Business Banking: Many small businesses use NOW accounts for their banking needs. A local bakery, for instance, could utilize a NOW account to cover their daily transactions like purchasing supplies or paying employee salaries. The bakery can earn interest on any money left in the account, thereby maximizing their business resources.3. Non-profit Organizations: NOW accounts are also beneficial for non-profit organizations. For example, a charitable organization that receives donations can store their funds in a NOW account, which allows them to both earn interest on their balances and have easy access to their funds when needed to finance their charitable activities.
Frequently Asked Questions(FAQ)
What is Negotiable Order of Withdrawal (NOW)?
A Negotiable Order of Withdrawal (NOW) is a type of deposit account in the United States that allows the account holder to withdraw money directly. It behaves similarly to a checking account but earns interest like a savings account.
How can I use a Negotiable Order of Withdrawal (NOW) account?
A NOW account can be used just like a regular checking account. You can issue checks, make online payments, use ATM cards, and do direct deposits.
Does a Negotiable Order of Withdrawal (NOW) account pay interest?
Yes, a NOW account pays interest at a rate similar to a savings account. Interest rates may vary depending on the institution and the balance in the account.
What are the requirements for opening a Negotiable Order of Withdrawal (NOW) account?
Generally, banks require you to maintain a minimum balance to open a NOW account and avoid fees. The specifics will vary from institution to institution.
Are there any limits on the number of withdrawals or checks that can be made from a NOW account?
No, in most cases, you can make unlimited withdrawals or write as many checks as you wish from a NOW account.
Are NOW accounts insured?
Yes, like other types of bank accounts, NOW accounts are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000.
Can businesses open NOW accounts?
Initially, only individuals and non-profit organizations could open NOW accounts. However, the law has changed, and now businesses, corporations, and partnerships can also open NOW accounts if allowed by their bank.
How does a NOW account differ from a regular checking account?
The primary difference between a NOW account and a regular checking account is that a NOW account pays interest, while a regular checking account typically does not. The interest rate for a NOW account may be lower than a savings account.
Related Finance Terms
- Interest-Bearing Checking Account
- Bank Deposit
- Demand Deposit
- Financial Institution
- Checking Account
Sources for More Information
