A demand deposit account is a checking account. Most demand deposit accounts (“DDA”) allows the customer to withdraw money from their account without advance notice, but the term also includes accounts that require six days or less of advance notice.
NOW accounts are essentially checking accounts where the customer earns interest on the money deposited. With a NOW account, the bank or credit union has the right to require at least seven days written notice of a withdrawal, though this is rarely performed.
NOW accounts were originally created so that individuals, non-profit organizations, and certain governmental units could earn interest on their deposits while Regulation D prohibited Banks from paying interest on demand deposit accounts.
However, with the issuance of Dodd Frank, Banks may now pay interest on all deposit accounts, including demand deposits. This being said, there is really no longer any special purpose for NOW accounts, but many Banks continue to offer them and/or maintain the NOW accounts that they had before the law changed.
The question to ask yourself here is, “Why?” Did you know that you don’t have to maintain these anymore? Do you really want to maintain this separate account type? Think about the cost involved in maintaining each deposit type that a Bank offers, between updating and reviewing system specs, disclosures, reporting, monitoring, etc. With NOW accounts, there is also the issue of verifying the account holder's eligibility for the account.
If you choose to continue to carry the NOW account product, that’s fine. However, if you choose to no longer offer it, you could change all of your NOW accounts to a regular DDA account with the same interest rate and terms. It would be totally transparent to the customer. You don’t even need to send the customers a notice because there will be no adverse change in the account terms.
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Senior Quality Control and Review Specialist
Sharon Geiger has 27 years banking experience, 21 of which have been involved in internal audit. She has extensive knowledge of all aspects of the banking industry, with a particular emphasis on regulatory compliance and identifying risks and controls. As QCR Specialist, she performs Quality Control Reviews to ensure all workpapers and reports are completed in compliance with the firm's standards.