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What is Direct Deposit?

Direct deposit provides quicker access to paychecks.
A direct deposit eliminates the need to stop by the bank after being paid.
Checkbook.
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  • Written By: Dana Hinders
  • Edited By: Bronwyn Harris
  • Last Modified Date: 13 September 2014
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Direct deposit is a banking option that allows for the transfer of funds without the hassle associated with paper checks. It is very common in the United States. In fact, research that over 145 million Americans transfer funds in this way on a regular basis. Many businesses offer their employees the option of using direct deposit to receive their paychecks. The IRS also allows taxpayers to receive refunds in this way. Social Security, unemployment compensation, and other government benefits may also be available with this option.

There are many advantages to using direct deposit for your banking needs. Funds sent in this way typically are processed faster than paper checks, allowing you quicker access to your money. If you don’t live near your bank or your schedule makes it difficult to run errands during the day, direct deposit is a convenient alternative to traditional banking. If you are trying to become more disciplined about saving money, you can arrange to have your deposit automatically divided between your checking account and savings account. If you’re concerned about the environment, you can rest easy knowing that this method reduces the amount of paper required to process financial transactions.

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The process for setting up a direct deposit can vary. Many employers will ask you to fill out a form that explains their payment schedule and gives them permission to access your bank account information in order to deposit your paycheck. A voided check that shows your bank account’s routing number may also be required. If you want to arrange for direct deposit of federal government benefits, however, you’ll need to call a customer service representative from the appropriate agency and provide your banking information over the phone.

Another variation of direct deposit is the direct payment option, sometimes referred to as automatic bill payment, electronic bill payment, automatic debit, or direct debit. This banking method allows you to arrange for the automatic payment of your monthly bills. Direct payments can be used to pay your mortgage, utility bills, credit card, or car loan. Some people even use direct payments to pay for magazine and newspaper subscriptions or charitable donations. If you have a tendency to forget to pay your bills on time, direct payment is a convenient way to manage your finances and prevent missed payments from damaging your credit rating. To arrange for direct payments, you’ll need to contact the companies that issue your monthly bills.

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Discuss this Article

seag47
Post 7

I always get my tax refund as a direct deposit into my account. It's so much faster, and I don't have to worry about a check getting lost in the mail.

Since my refund is usually around $1,000, I feel more secure knowing that it will be going directly into my account. This is not something I would want to risk being stolen in transit to my house.

Before the IRS offered direct deposit, I used to have to wait weeks or even months for my refund checks. I'm glad those days are over.

cloudel
Post 6

@kylee07drg – Wow, I thought all employers had to offer direct deposit service! Your workplace is really behind.

I have been spoiled by direct deposit, because I've had my paycheck deposited this way for nearly ten years. I wouldn't even know what to do if they handed me a check!

kylee07drg
Post 5

I wish I could get direct deposit of my paycheck, but I work for a small, family-owned company that doesn't offer this service. They've been around for over a hundred years, and they have about thirty employees, but they still don't offer direct deposit.

I have to go during my lunch hour to deposit my check, which is really inconvenient. It means I have less time to eat and no time to walk around the park like I always do for exercise.

I don't get off work until 5:00, and that is when the banks close. So, going at lunch time is my only option.

DylanB
Post 4

Direct deposit is great, but direct payments scare me. I'm always afraid that I won't have enough money in my account to cover my bills when they come due, so I never set up this option.

Instead, I do direct payments with my credit card. That way, I have several weeks to pay them off before the due date, and I have complete control over when I pay them.

jonbook
Post 3

Direct payment is an excellent tool for payment in the United States, but payments out of this area are problematic. I need to send payments directly to Europe and it seems impossible to use this approach.

oasis11
Post 2

Sneakers41- I didn’t know that. I have all of my accounts set up through Bill Pay and I never have to worry about writing another check.

My bank does not charge for the Bill Pay service and I don’t have to worry about my bills. I enrolled online it was easy.

sneakers41
Post 1

Great article- I want to add that banks offer many incentives for their loan applicants that choose direct payment options.

With a direct payment option, the funds are automatically withdrawn on a set schedule. Banks providing loans love this because they know that they will get their money on time.

Many lenders even offer discounts on loans for those that participate in direct payment of their loans. On some mortgage and auto loans a discount of .50% basis points is not uncommon. Credit Unions also offer the incentive and because of their non-profit status might give you an even greater discount on a loan.

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