A NOW account is a checking account that pays you interest on your balance

NOW stands for Negotiable Order of Withdrawal. It is a hybrid between a traditional checking account and a savings account — you can write checks and use a debit card like a regular checking account, but the bank also pays you interest on the money you keep in it, the way a savings account does. The interest rate is typically low, often less than 1 percent per year, but it is real money the bank adds to your account.

NOW accounts became common in the 1980s and 1990s, when federal rules prevented banks from paying interest on regular checking accounts. That rule changed in 2011, so many banks now offer interest-bearing checking accounts under different names. Some still call them NOW accounts; others call them money market checking accounts, premium checking accounts, or rewards checking accounts. The mechanics are the same: you get check-writing and debit card access, plus interest.

The tradeoff is usually a higher minimum balance requirement. A NOW account often requires you to keep $1,000 to $2,500 in the account at all times, or the bank waives the interest and may charge a monthly fee. Some banks waive the minimum if you set up direct deposit or maintain a linked savings account. The interest you earn is modest — often between 0.01 and 0.50 percent annually — so the account makes sense mainly if you keep a large balance anyway and want it to earn something rather than sit idle.

Key Takeaways

  • A NOW account combines checking account features (checks, debit card, transfers) with interest payments on your balance.
  • Interest rates on NOW accounts are typically very low, under 1 percent per year, so the benefit is small unless you maintain a large balance.
  • Most NOW accounts require a minimum balance of $1,000 to $2,500 to earn interest; if your balance drops below that, you may lose the interest rate or pay a monthly fee.
  • Many banks have replaced traditional NOW accounts with other interest-bearing checking products under different names, so you may not see the term NOW used as often today.

How NOW accounts differ from regular checking and savings accounts

A regular checking account lets you write checks, use a debit card, and make transfers, but the bank does not pay you interest. Your money sits there earning nothing. A savings account pays interest but usually limits how many withdrawals or transfers you can make per month, and you cannot write checks against it.

A NOW account splits the difference. You get full checking privileges — unlimited checks, a debit card, online bill pay — and you also earn interest on whatever balance you maintain. The interest is not much, but it is there. The catch is the minimum balance: if you drop below it, the interest stops and a monthly maintenance fee often kicks in. A regular checking account typically has no minimum or a much lower one ($100 to $500), so it is cheaper to maintain if you do not keep much money in it.

High-yield savings accounts, which have become more common in recent years, now pay much higher interest — sometimes 4 to 5 percent annually — but they are not checking accounts. You cannot write checks or use a debit card. If you need both checking access and the highest possible interest rate, you would open both a NOW or interest-bearing checking account and a separate high-yield savings account.

Minimum balance requirements and fees

The minimum balance is the key cost of a NOW account. Most banks require $1,000 to $2,500 to be in the account at all times to earn the advertised interest rate. Some require more. If your balance falls below the minimum even for one day, the bank typically stops paying interest that month and may charge a monthly fee of $10 to $25.

A few banks waive the minimum if you meet other conditions: setting up direct deposit of your paycheck, maintaining a linked savings account with a certain balance, or keeping a minimum balance in a related investment account. Read the account terms carefully, because the conditions vary widely. Some banks also waive the fee if you maintain the minimum balance for most of the month, even if you dip below it briefly.

If you do not keep a large balance regularly, a NOW account is not worth the risk of fees. A regular checking account with no minimum is cheaper and simpler. If you do keep $2,000 or more in checking at all times anyway, a NOW account costs nothing extra and earns you a small amount of interest.

Interest rates and how they are calculated

NOW account interest rates are set by each bank and change over time. As of 2024, most banks pay between 0.01 and 0.50 percent per year on NOW accounts. Some credit unions pay slightly higher rates, up to 1 percent or more, but these are exceptions. The rate depends on the federal funds rate set by the Federal Reserve; when the Fed raises rates, banks gradually raise the rates they pay on deposits, and vice versa.

Interest is calculated daily and deposited monthly. The bank adds up your balance at the end of each day, divides the annual interest rate by 365, and multiplies by your daily balance. At the end of the month, it deposits the total interest earned into your account. If you maintain a $2,000 balance in an account paying 0.25 percent annually, you would earn about $5 per year, or roughly 40 cents per month.

The interest is taxable income. The bank will send you a 1099-INT form at the end of the year if you earned $10 or more in interest, and you must report it on your tax return. This is one reason the benefit of a NOW account is small: the interest you earn is modest, and you have to pay income tax on it.

When a NOW account makes sense for you

A NOW account is worth considering if you meet two conditions: you keep a large balance in checking regularly (at least $1,500 to $2,000), and you want that money to earn something rather than sit idle. If you have $5,000 or more in checking at all times, the interest adds up enough to justify the account, even if it is only a few dollars per month.

A NOW account also makes sense if your bank offers one with no minimum balance or a very low one ($100 to $500). Some online banks and credit unions have removed the minimum requirement entirely, so you get the interest benefit without the risk of fees. Check your current bank's offerings before opening a new account elsewhere.

If you keep less than $1,000 in checking, or if your balance fluctuates below the minimum, skip the NOW account. The risk of paying a monthly fee outweighs the interest you would earn. A regular checking account with no minimum is the better choice. If you want to earn interest on money you are not spending, open a separate high-yield savings account and keep your checking account simple.

Where to find NOW accounts today

Most traditional banks still offer NOW accounts, though they may call them by different names: interest-bearing checking, money market checking, or premium checking. Call your bank or check their website to see what they offer. Credit unions often have NOW accounts or similar products, sometimes with better rates than banks.

Online banks like Ally, Charles Schwab, and some others offer interest-bearing checking accounts with no minimum balance and rates that are competitive with or better than traditional banks. These are worth comparing if you are willing to bank online and do not need a physical branch.

Before opening any account, compare three things: the interest rate, the minimum balance requirement, and the monthly fee if you fall below the minimum. A bank offering 0.40 percent interest with a $2,500 minimum and a $20 fee is not as good as one offering 0.25 percent with a $500 minimum and no fee, depending on how much you keep in the account.

Frequently Asked Questions

Is the interest I earn on a NOW account taxable?

Yes. Any interest you earn is taxable income. If you earn $10 or more in a calendar year, the bank sends you a 1099-INT form, and you report the interest on your tax return. The amount is usually small, so the tax impact is minimal, but it is real.

Can I lose money in a NOW account?

No. The money in your account is insured by the FDIC (Federal Deposit Insurance Corporation) up to $250,000, so you cannot lose your principal. The only risk is paying a monthly fee if your balance drops below the minimum, which reduces what you have, but does not create a loss.

What happens if my balance drops below the minimum?

The bank stops paying interest that month and usually charges a monthly maintenance fee of $10 to $25. Some banks waive the fee if your balance recovers before the end of the month. Check your account agreement to see the exact policy.

Is a NOW account better than a regular checking account?

Only if you keep a large balance and want it to earn interest. If you keep less than $1,500 in checking or your balance varies, a regular checking account with no minimum is simpler and cheaper. The interest on a NOW account is too small to justify paying a fee.

Can I write checks on a NOW account?

Yes. A NOW account includes full checking privileges — you can write unlimited checks, use a debit card, set up automatic bill pay, and make transfers. The only difference from a regular checking account is that you earn interest on the balance.