What is Direct Deposit?
Direct deposit is an electronic payment sent directly to your checking account. Instead of getting an old-fashioned check, which you would have to deposit, funds go directly from your employer's bank to your bank (or funds leave your bank account if you're making payments).
This is all possible because banks communicate through computer networks, specifically the Automated Clearing House (ACH) network.
With direct deposit, your account balance will automatically increase when payments arrive. You don’t need to “accept” the payment or deposit funds to your account as you may have done in the past.
Direct deposit is increasingly popular, and tens of billions of ACH payments are completed every year. Some branches of government, such as the Social Security Administration, no longer print checks – they require that you receive funds electronically (either through direct deposit or via a reloadable debit card). Employers may also make it difficult to receive wages by check.
Why Use Direct Deposit?
There are plenty of good reasons for using direct deposit:
- No need to wait for checks to arrive in the mail (you can be out of town when payment arrives)
- When you receive checks, you need to get them to the bank (or make deposits with your mobile device); electronic payments get the money to your bank automatically
- After you deposit a check, you generally have to wait to use the funds; at most banks, money is available more quickly with direct deposit (see your bank's funds availability policy)
- You’ll have an electronic record of every payment you receive, complete with the name of who paid you
- Direct deposit is safer – nobody can steal a check, alter it, and attempt to cash it
- Direct deposit is less expensive for whoever is paying you (this improves their ability to keep paying you)
- Sometimes you get paid sooner (deposits might hit your account a day or two before your co-workers get their paper checks – which they still need to take to the bank)
How to set up Direct Deposit
To receive payments electronically, you’ll need to provide bank account information to the organization that is paying you. They may require that you use a specific form (ask for a "direct deposit form") or you might be able to simply provide a photocopy of a voided check. In some cases, you'll provide your account information online.
One way or another, they’ll need your bank account number and routing number. You can find those numbers on any personal check, or you can call your bank and ask for direct deposit information (details are often available online as well, but it's best to log in to your account for accurate information). Note that your routing and account numbers are sensitive information – don’t share those numbers with anybody unless you truly trust them.