Answer:
NOW stands for Negotiable Order of Withdrawal. And while NOW accounts are addressed in detail in Reg. D, it is Reg. Q which prohibits the payment of interest on a demand deposit.
217.3 Interest on demand deposits. No member bank of the Federal Reserve System shall, directly or indirectly, by any device whatsoever, pay any interest on any demand deposit.
It is important to look at the definitions of NOWs, MMDAs and ATS accounts in Regulation D. You will find that, technically, they will fall into a savings deposit category.
First published on BankersOnline.com 2/4/02
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