Does a NOW account have to pay interest to be considered a NOW account if it meets all the other eligibility requirements? If you have accounts that don't pay interest but the account holders are eligible for NOW accounts but these accounts do not pay interest, are these accounts then considered DDA accounts?

The restrictions required on a NOW account are because it pays interest. If you permanently remove the interest earnings feature, it is just a DDA with restrictions you impose.

Andy,

If you remove the interest earnings feature, but leave the 7 day right to notice of withdrawal in place - won't it still be a NOW account? If interest rates keep falling and in a disinflationary market, stopping the payment of interest on NOW account for a specific period of time may not be out of the question. If you stop paying interest, do you have to reclassify them a DDA accounts for reserve purposes?

My point was that if you permanently take away the interest feature, there is little point to the account.

Regardless of the interest earnings, if the 7 day notice is there it would be classified as a NOW and reserved accordingly, in my opinion. There may be some advantages to the bank, but none to the customer.

Since NOW accounts are transaction accounts, they are already in the transaction account category as far as reserves (both demand and NOW accounts require a 7 day notice restriction).

I'd say that 0% APY NOW accounts continue to be NOW accounts, based on the fact that they are subject to the payment of interest with a current APY of 0%.

By the way, can you image any financial institution actually envoking the 7 day written notice? We would all be looking for work!

In reply to:

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both demand and NOW accounts require a 7 day notice restriction

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DDA's don't.

And I can't speak to the reserves, but NOWs are on the call report separate from DDAs as I recall. Aren't they in the same category as ATS accounts?

Yes, "Other Transaction Accounts" include ATS accounts, NOW accounts, and telephone and preauthorized transfer accounts. They are now all reported as one group on FR2900.

The point is that it would be a nightmare to switch NOW accounts to demand status, simply because the APY is 0% and switch them back when interest payments resume. As far as the Call report is concerned, they are listed under transaction accounts (RC-E)- the same category as demand deposits, but listed as interest-bearing accounts on the balance sheet(RC). I'm not sure why they are listed separately on reserve reporting, probably something to do with volume tracking type product, versus any other issue.

I think we all agree and your statement reiterates my point. Is the interest at 0% permanent or temporary? I would assume because of today's environment the question is one of a temporary nature. This isn't the first time we have had to explore a 0% rate recently. While a little sounds better than nothing, there isn't much of a spread between the two nowadays.