NOW Accounts

Negotiable Order of Withdrawal Checking Accounts

Some years ago, federal regulations were significantly eased to permit banks to pay interest on checking accounts. Both savings and commercial banks offer a variety of NOW (Negotiable Order of Withdrawal) checking accounts, all of which have two things in common. Each pays interest on the funds that are in the account, and each requires a depositor to maintain a minimum balance that is usually greater than the balance needed for maintaining a regular checking account.

As with other types of accounts, the customer should shop around to determine which institution provides the most benefits. Among the several factors to be considered are the following:

  • Free checking. Some NOW accounts involve no monthly or per check fees as long as the minimum balance is maintained.
  • Minimum balances. These vary from bank to bank. As with a regular checking account, a NOW account from Bank A may require that you maintain $300 in your account while Bank B may require $1,000. However, Bank A may demand that the balance never fall below the $300 mark during the calendar month, while Bank B may average the balance for the month and allow full privileges if the average does not drop below $1,000.
  • Penalties. If you fail to maintain the required minimum balance, some banks will levy a per check charge, others a service fee; some will levy both. These fees will usually match those the bank charges its special checking account customers, for example, 20 cents per check. In addition, some banks will charge a service fee linked to the amount on deposit, such as $4 per month when the average monthly balance falls to between $1,000 and $2,000, and $8 per month when the balance falls below $1,000.
  • Interest payments. Most banks will continue to pay interest on the balances in NOW accounts even when those balances have fallen below the level required for free checking. Some banks, however, require that a smaller balance –$100 or $200, for example –be maintained if interest is to be paid.
  • Transfers of funds. Some banks offer automatic transfer of funds from savings to NOW accounts in order to ensure a minimum balance in the latter. This offer may apply only to statement savings accounts.

Special Charges

All banks charge extra fees for stop payment orders on checks, as well as for processing checks that have been returned because of insufficient funds. Since the fees vary widely from bank to bank, inquire about them before opening an account. Some banks charge $5, others $10, others as much as $30 when they must return a check to a depositor because of insufficient funds. Stop payment orders similarly vary in cost — from as little as $4 to as much as $15, depending on the bank.