Definition and Example of NOW Accounts
How NOW Accounts Work
Do I Need a NOW Account?
Alternatives to NOW Accounts
Definition and Example of NOW Accounts
A NOW account is an interest-bearing checking account, but the bank can require a notice of no less than seven days for any withdrawal. A NOW account is an interest-bearing checking account. In return, the bank can require a notice of no less than seven days for any withdrawal. These accounts were created as a loophole in the twentieth-century rule that prohibited paying interest on checking accounts. NOW accounts are not commonly used today, as many types of checking accounts can earn interest. When using NOW accounts, banks rarely enforce the withdrawal notice rule.
How NOW Accounts Work
A NOW account is similar to a regular checking account. The customer opens an account and deposits money, which can be withdrawn via ATMs or used to make payments by check, debit card, or online payments. They differ from regular checking accounts because banks have the right to require a notice of no less than seven days for any withdrawal from a NOW account. When they were first created, NOW accounts were popular because they provided consumers with the option to earn interest on a checking account, which was not previously available. In 2011, the Dodd-Frank Act allowed all checking accounts to earn interest. This eliminates the distinction between NOW accounts and checking accounts, except for the bank’s ability to hold your withdrawal for seven days in a NOW account.
Do I Need a NOW Account?
NOW accounts eventually paved the way for standard interest-bearing checking accounts. However, few customers use NOW accounts, as many checking accounts provide interest. The best interest rates are often reserved for those customers with large deposits. Average interest rates for checking accounts are generally less than 1%. To get the best deal on an interest-bearing checking account, you should compare rates among institutions, as they vary. However, opening a NOW account is not necessary.
Alternatives to NOW Accounts
High-yield checking accounts or money market accounts allow customers to earn interest on their money while maintaining the easy access provided by a checking account. These accounts can be offered by banks or credit unions. High-yield checking accounts often come with specific terms to earn the highest interest rates, such as a certain number of transactions per month, minimum balances, or maximum balances, beyond which lower interest is earned. Credit unions often have specific membership requirements to join, and you should check each union individually to see if you qualify. If you do not qualify to join a credit union offering a high-yield checking account, you may want to check online-only banks for the best rates. Since online banks have much lower overhead costs than traditional banks, they can offer higher interest rates. Many online banks will offer high-yield checking accounts that provide better interest than standard checking accounts. The rates available will depend on the bank and your balance size.
Source: https://www.thebalancemoney.com/what-is-a-now-account-4582920
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