Most people look forward to payday. Direct deposit is a low-hassle, secure and convenient way to ensure money lands safely in your account, so you can spend however you like. Learn more about how direct deposit works, along with its pros and cons.
Direct deposit refers to the digital transfer of money into a recipient’s checking or savings account. Direct deposit may be used for a variety of payments, but this electronic payment method is commonly used for a company’s payroll process. When employees enroll in direct deposit, a company can send money for single payments or on a recurring basis.
To make a direct deposit, a company sends money directly to an individual. The transfer of money is made possible by the Automated Clearing House (ACH) network, a payment system that reaches all U.S. banks and credit unions.
Normally, people enroll in direct deposit with their employers on a recurring basis. When you do this, you’ll receive a direct deposit on the employer’s normal payroll schedule. Employers typically schedule direct deposits for your paycheck so that the money is available in your account on payday.
Here are the steps normally required to enroll in direct deposit:
Once you submit the proper forms, establishing direct deposit can take several days or weeks. Your employer can typically tell you when your first direct deposit will take place. The time depends on how long it takes the employer to confirm the employee’s bank account details.
When the financial information for all parties is in order — and assuming it isn’t a bank holiday — setting up direct deposit can be a short and straightforward process.
For employees, direct deposit may seem like a total win: You get your paycheck with ease each pay period. There are many benefits, however there can be some downsides to consider as well.
Business owners also have pros and cons to consider when it comes to offering direct deposit to their employees. Many prefer the ease and convenience of paperless payments; however, there can also be disadvantages on the business side.
No. Direct deposit is not the same as a wire transfer, which also moves money electronically between banks. A wire transfer relies on the individual bank to process the transaction and transfer the money from payer to payee. The money only moves when the bank confirms that there is enough money available to complete the transfer. Direct deposits rely on the ACH network to process and clear the transactions.
Direct deposit is free for employees, but employers may pay some fees for the service. Companies usually pay a setup fee to establish direct deposit as an option for their employees. The company might also pay a small fee for each transaction to maintain the service.
Direct deposits can sometimes be issued and distributed between checking and savings accounts in different amounts. When setting up direct deposit with your employer, you complete a form to select exactly where you’d like your check deposited. It may be possible to split your pay between multiple accounts.
It can generally take between one and three business days for a direct deposit to become available in your bank account. For payroll, employers typically arrange direct deposits ahead of employees’ paydays to ensure their money arrives on time. Sometimes this results in payment occurring in advance of the actual payday.
You can check to see if a direct deposit is pending or has posted by signing in to your bank’s mobile app or website. For paychecks and other employee payments, your human resource department should be able to provide information about a direct deposit’s status.
Direct deposit can be a beneficial payroll system for companies because of its convenience and reliability. There are several factors to consider when setting up direct deposit, whether you’re an employee or a company that offers direct deposit. Review the pros and cons of direct deposit to decide whether direct deposit is right for you.
