Encyclonomic WEB*pedia: NEGOTIABLE ORDER OF WITHDRAWAL ACCOUNTS

NEGOTIABLE ORDER OF WITHDRAWAL ACCOUNTS:
Interest-paying checking accounts maintained by commercial banks, savings and loan associations, and mutual savings banks. These function much like standard demand deposit checking accounts in that the funds can be withdrawn "on demand" by writing a check, but an interest is paid on the outstanding balance. Negotiable order of withdrawal (NOW) accounts are one type of checkable deposits. Others are demand deposits (standard checking accounts), share draft accounts, and automatic transfer service (ATS) accounts.
Negotiable order of withdrawal (NOW) accounts are checkable deposits, or checking accounts, that pay an interest on the balance. The interest paid on the balance is usually variable, depending on market conditions, and requires a minimum balance. NOW accounts are something of a cross between standard demand deposit checking accounts and standard savings accounts.
These accounts generally have unlimited check writing abilities (unlike money market deposits) and while the bank can legally require seven days written notice prior to the withdrawal of funds, this requirement is almost never enforced. Unlike demand deposits, NOW accounts can only be issued to individuals, nonprofit organizations, and sole proprietorships. Corporations are explicitly prevented from having NOW accounts.
Some Recent Numbers
M1
June 2004 (Billions)
Component Amount
Currency $676.8
Checkable Deposits 650.7
Demand Deposits 321.6
Other Checkable
Deposits: Banks 187.2
Other Checkable
Deposits: Thrifts 141.9
Nonbank
Travelers Checks 7.7
Total M1 $1,335.2
The table to the right presents values for M1 and its key components, currency and checkable deposits, for selected years. The "Other Checkable Deposits: Banks" and "Other Checkable Deposits: Thrifts" categories contain NOW accounts.
A New Kid on the Block
NOW accounts are relatively new to the financial landscape, dating back only to the 1970s. These accounts were first offered by savings and loan associations and mutual savings banks as a means of competing with traditional commercial banks. At that time traditional commercial banks were the only institutions that could legally offer checking accounts (demand deposits).
In fact, these accounts were so named in large part to skirt banking regulations that existed when they were first issued. Negotiable order of withdrawal is really nothing more than a euphemism, or technical description, of what a traditional "check" is. A check is an order to the bank to withdraw funds, the amount of which is negotiated between the depositor and the party receiving the payment. In effect, ALL checks are really "negotiable orders of withdrawal."
With high rates of inflation and high interest rates, banking customers looked for ways to retain liquidity (as in spendable money) while also generating interest payments. NOW accounts were offered to meet this need and to attract deposits to savings and loan associations and mutual savings banks. While such accounts skirted existing banking regulations they became legal in the 1980s. With this legality, traditional commercial banks jumped on the competitive bandwagon and also began issuing NOW accounts.
A Couple of Others
NOW accounts are one type of interest-paying checking account that emerged in the 1970s. Two others are share draft accounts and ATS accounts.
Share Draft Accounts: Credit unions got into the competitive checking account market by offering share draft accounts. Because "draft" is another term for "check" this too was effectively another type of checking account, but which also paid an interest on the balance in the account.

ATS Accounts: To remain competitive with the interest-paying "checking accounts" offered by their depository competition, traditional commercial banks began offering automatic transfer services (ATS) accounts. This involved the automatic transfer of funds from a savings account to a checking account to process checks. This service allowed banks to pay interest on the balance of the savings account, even though the savings account effectively functioned as a checking account.
While demand deposits were once the only checking account option and continue to account for half of the checkable deposits issued by traditional commercial banks and other depository institutions, NOW accounts play a significant role in the M1 money supply. Together with share draft accounts and ATS accounts, these "other" checkable deposits are almost one-forth of the M1 money supply.
Check Out These Related Terms...
     | checkable deposits | demand deposits | share draft accounts | automatic transfer service accounts | currency | Federal Reserve notes | near monies | plastic money |
Or For A Little Background...
     | money | money functions | medium of exchange | M1 | saving | liquidity | banks | financial markets | business |
And For Further Study...
     | money creation | fractional-reserve banking | banking | Federal Reserve System | monetary economics | monetary base | monetary policy | debit card | monetary economics |
Recommended Citation:
     NEGOTIABLE ORDER OF WITHDRAWAL ACCOUNTS, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2025. [Accessed: December 16, 2025].