What Is a Super NOW Account?
A Super NOW Account, short for “super negotiable order of withdrawal account”, is a type of bank account in which the owner can write bank drafts against the money held on deposit.
Super NOW Accounts are different from regular negotiable order of withdrawal (NOW) accounts in that they pay a higher rate of interest. Typically, they pay interest that is in between that of a regular checking account and a money market account.
Today, Super NOW Accounts, and NOW accounts in general, are less widely used than they were in the past. This is because a series of regulatory changes have reduced the differences between NOW accounts and other account types.
- A Super NOW Account is a type of bank account in which the owner can write bank drafts against the money held on deposit.
- They are different from normal NOW accounts in that they pay higher interest, typically offering rates that are in-between a checking account and a money market account.
- Super NOW accounts are the product of the history of US banking regulations. Recent regulatory changes have made Super NOW accounts less relevant than they were in the past.
How Super NOW Accounts Work
Super NOW Accounts are the product of a long series of changes to US banking regulations, beginning with the Banking Act of 1933. This Act banned banks from paying interest on deposits that were payable on demand. This was done to protect the then-fragile banks from competing with one-another to offer ever-higher interest rates in an effort to attract customers, thereby potentially undermining their financial strength.
As interest rates rose, however, banks came under growing pressure from customers to start paying interest on demand accounts. To accommodate this customer demand, banks introduced a series of changes designed to work around the restrictions of the Banking Act. This started with non-financial rewards, such as offering more convenient features including additional branch offices, along with giveaways of consumer goods to attract new customers. Other incentives, such as preferred rates on loans and below-cost charges for check clearing and other common services, also became common.
In 1974, Congress loosened the restrictions of the Banking Act, allowing NOW accounts in Massachusetts and New Hampshire and then in all of New England two years later. However, this loosening of regulations was subject to two important conditions: these accounts were prohibited from paying interest above 5% and were also required to obtain a 7-day notice period from customers before withdrawing funds. Subject to these conditions, NOW accounts were rolled out throughout the US in 1980. Six years later, the interest rate ceiling was removed, and although the 7-day notice period remains in place to this day, it is rarely enforced.
Today, there is little difference between an interest-bearing chequing account and a NOW or Super NOW account. However, in the past when banks were prohibited from paying interest on demand accounts, NOW accounts were a compromise solution that allowed customers to be paid interest. They were therefore more relevant in the past than they are today.
In 2011, Congress revoked the law prohibiting the payment of interest on demand accounts. For this reason, there is no longer a significant difference between NOW accounts, Super NOW accounts, and interest-checking accounts. Indeed, these accounts will often have different meanings depending on the institution offering them.
Nevertheless, these account types continue to be used, a legacy from the post-Depression era of US banking regulations.