---
title: "Negotiable Order of Withdrawal | Principles of Economics"
description: "Negotiable Order of Withdrawal (NOW) accounts are bank accounts that earn interest and allow check writing, making them a liquid part of the money supply in Principles of Economics."
canonical: "https://fiveable.me/principles-econ/key-terms/negotiable-order-withdrawal"
type: "key-term"
subject: "Principles of Economics"
unit: "Unit 27"
---

# Negotiable Order of Withdrawal | Principles of Economics

## Definition

A Negotiable Order of Withdrawal (NOW) account is a bank account that lets you write checks while earning interest. In Principles of Economics, it is treated as a liquid, checkable deposit that can count in M1.

## What It Is

A Negotiable Order of Withdrawal, or NOW account, is a bank account in Principles of Economics that blends features of a checking account and a savings account. You can make payments with checks or similar withdrawals, but the money can also earn interest while it sits in the account.

That hybrid design is why NOW accounts show up in money-supply lessons. Economists care about how quickly money can be used for purchases, and NOW accounts are highly liquid because the funds are available for transactions with little delay. Since they can function like spendable balances, they are grouped with checkable deposits in M1 rather than being treated like less accessible savings.

The term itself points to the old banking innovation behind the account: a negotiable order of withdrawal is basically a written instruction telling a bank to pay someone from your account. In everyday language, that sounds a lot like writing a check, which is exactly why NOW accounts blur the line between checking and savings. The key difference from a standard checking account is that NOW accounts typically pay interest, even if the rate is not especially high.

That interest feature matters because it shows how banks design accounts to attract deposits while still keeping money available for spending. A regular savings account usually offers more interest but fewer transaction tools, while a checking account gives easy access but usually little or no interest. A NOW account sits in the middle, giving consumers flexibility and making the funds useful for measuring liquid money.

In a Principles of Economics class, NOW accounts often come up when you are sorting assets by liquidity or deciding what counts in M1. If you see a scenario about a depositor who can write checks and still earn interest, that is a strong clue that the account is a NOW account and that it belongs in the most liquid money category.

## Why It Matters

Negotiable Order of Withdrawal matters because it shows how economists classify money by liquidity, not just by whether something is stored in a bank. When you study M1, you are not memorizing random account names. You are learning which balances can be used quickly for everyday transactions and which ones are more restricted.

NOW accounts also help show that the banking system does more than hold money. Banks create products that change how people keep cash, earn interest, and pay bills, and those choices affect how economists measure the money supply. A balance that looks a little like savings but behaves a lot like checking can change how a scenario is counted in M1.

This term also gives you a clean way to compare account types on quizzes or in class discussion. If a question describes check-writing access, interest earnings, and immediate transaction use, you can separate NOW accounts from ordinary savings accounts, certificates of deposit, and other less liquid assets. That kind of classification shows up in problem sets where you sort items into M1 or M2, or explain why the Federal Reserve watches liquid money closely.

## Connections

### Checking Account

A checking account is the closest everyday comparison because both accounts are designed for spending and bill payment. The difference is that a NOW account usually pays interest, while a checking account often does not. If a question mentions frequent transactions and check writing, you should think about liquidity first and then look for the interest feature that points to a NOW account.

### Savings Account

A savings account overlaps with a NOW account because both can earn interest, but savings accounts are usually less convenient for direct purchases. In economics terms, the savings account is more of a store of value, while a NOW account keeps more transaction power. That distinction matters when you decide what belongs in the narrow money measure versus what is more like a deferred asset.

### M1 Money Supply

NOW accounts are connected to M1 because they are highly liquid and can be used for transactions. When a problem asks what counts in M1, you look for assets that function almost like cash or checking balances. A NOW account is one of the classic examples of a bank deposit that belongs in the narrow money measure.

### [Checkable Deposits](/principles-econ/key-terms/checkable-deposits)

Checkable deposits are balances that can be accessed by writing checks or making similar payments, so they are part of the money economists count as readily spendable. NOW accounts fit this category because they allow transaction use. In a classification question, the presence of check writing is a big clue that the account is checkable, even if it also earns interest.

## On the AP Exam

A quiz item or problem set may ask you to identify whether a NOW account belongs in M1, M2, or neither. The move you make is simple: check whether the account is liquid enough to spend quickly and whether it functions like a checkable deposit. If the prompt says the account earns interest but still allows check writing, you should connect that to NOW accounts and place it with M1.

You may also see this term in a short scenario about a consumer choosing between accounts. Look for the tradeoff between convenience and interest. If the question asks you to explain why an economist would count the account as money, mention that it can be used for transactions without much delay. The best responses do not just define the term, they use liquidity and transaction ability to justify the classification.

## Negotiable Order of Withdrawal vs Savings Account

NOW accounts are often confused with savings accounts because both can earn interest. The difference is that NOW accounts are designed to be more transaction-friendly, including check writing, so they function more like checking accounts in money-supply categories. A savings account usually has tighter limits on direct spending.

## Key Takeaways

- A Negotiable Order of Withdrawal account is a bank account that lets you write checks and earn interest at the same time.
- In Principles of Economics, NOW accounts matter because they are liquid enough to count in M1.
- The term sits between checking and savings, which makes it a good example of how banks mix transaction access with interest earnings.
- If a scenario mentions check writing plus interest, think NOW account before you think ordinary savings account.
- Knowing this term helps you classify money by liquidity instead of by the account name alone.

## FAQs

### What is Negotiable Order of Withdrawal in Principles of Economics?

A Negotiable Order of Withdrawal account is a bank account that allows check writing while also paying interest. In Principles of Economics, it is treated as a highly liquid form of money because the funds can be used for transactions quickly. That is why it is associated with M1.

### Is a NOW account part of M1 or M2?

A NOW account is part of M1 because it behaves like a transaction account. Economists count it as money that can be used almost right away, not as a less liquid savings asset. If a question asks you to sort it, focus on its check-writing and spendable features.

### How is a NOW account different from a checking account?

Both accounts are transaction-friendly, but a NOW account usually earns interest while a checking account often does not. That makes NOW accounts a hybrid between checking and savings. In a money-supply question, the transaction side matters more than the label.

### Why do economists care about NOW accounts?

Economists care because NOW accounts affect how much liquid money people actually have available to spend. Since the Fed and economists track money supply by liquidity, accounts like NOWs help define what counts in M1. They also show how bank products can blur the line between saving and spending.

## Related Study Guides

- [27.2 Measuring Money: Currency, M1, and M2](/principles-econ/unit-27/2-measuring-money-currency-m1-m2/study-guide/EQaqbtrZHHmUVhEV)

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