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- Direct deposits are faster and more convenient ways to access your money than paper checks.
- When you sign up for direct deposits, paychecks go directly into your bank account every payday.
- You can get direct deposits for paychecks, unemployment checks, tax refunds, and stimulus checks.
You may be used to receiving a check on payday, then going to a bank to deposit the money into your account. But you don't have to keep track of a check or find time to visit a bank or ATM if you have direct deposit set up.
Here's how direct deposit works and how to enroll.
What is direct deposit?
When you set up direct deposit, money automatically goes into your account digitally when it's time to get paid. You don't need to take any extra steps on payday, like approving the funds with your bank first.
Direct deposit is commonly used for your paychecks. But you can also set up direct deposit to receive your tax refunds, government stimulus checks, unemployment checks, and other types of payments.
In many cases (especially for your company paycheck), you can choose to split your direct deposit into multiple accounts. For example, you may tell your employer to automatically deposit 80% of each paycheck into your checking account and 20% into savings.
How to set up direct deposit
To enroll in direct deposits from with employer, request a direct deposit form. If you file your taxes online, you can fill out a form digitally. If you use a CPA to file taxes, tell your CPA you want to receive your tax refund via direct deposit, and they should provide you with a form.
Once you have your form, you'll likely need the following information:
- Bank name and address. If you use an online bank or large brick-and-mortar bank, you can probably Google the name of the bank and find the address of the corporate headquarters. Otherwise, contact a customer service representative to ask what address you should use.
- Bank account number. Providing your number ensures your money goes into the right account.
- Bank routing number. This is a nine-digit code that indicates which branch you visited to open your account.
- Names of people on the account. You might need to provide the names of all people who are on the account, like a spouse or a parent.
- Voided check. Not all companies will request a voided check, but some might. A voided check is a paper check from your bank with the word "VOID" written across it. This way, the business can verify your banking information on your check, but no one can actually use it. If you already have paper checks, you can create a voided check yourself. Otherwise, request one from your bank.
If you have trouble finding the necessary information to fill out a direct deposit form, contact your bank for assistance.
How long does direct deposit take?
Once you set up direct deposits through your employer, it could take one or two pay cycles for your company to process your direct deposit form. In this case, you'll still receive your next paycheck or two as a physical check.
But once everything is good to go, your direct deposit should appear in your account on payday, the same day you'd normally receive a paper check.
If you're receiving unemployment, your cash should show up in your account a few business days after you claim your benefits. But the exact number of days depends on the state.
With a paper check, the money wouldn't show up in your account until the business day after you deposited it. But with direct deposit, you have immediate access to your cash.
Some banks even allow you to receive your direct deposit early, including paychecks and unemployment checks. Kate Wauck, Vice President of Communications for Wealthfront, told Insider that almost any institution has the ability to get your paycheck to you sooner, but many don't because they earn interest on deposits. So the longer a bank holds onto your money, the more it earns.
But there are a handful of banks that allow early direct deposits. Find out if your bank participates and whether you can get your paycheck up to two days early.
What are the benefits of using direct deposit?
Here are four reasons why direct deposit can be beneficial to your banking.
1. Convenience
Once you've enrolled in direct deposits with your employer, the state, or the IRS, you shouldn't have to take any other steps to receive your money. You don't even have to approve an incoming deposit on payday — it just shows up in your account.
This can be much easier than driving to a bank to deposit your check, and even easier than depositing a check with your mobile banking app.
2. Security
With direct deposits, everything is digital. This way, you don't have to worry about losing your check, or about someone stealing it.
3. Quick access to your money
Depending on your work schedule, it could take a few days before you have time to deposit a paper check at a bank. Then you'll have to wait until the following business day for the money to show up in your account. With direct deposits, you could have access to your money days earlier.
And if your bank uses early direct deposits, you might even get your paycheck before some of your coworkers.
If you deposit checks into a high-yield savings account, receiving your funds sooner means you can start accruing and compounding interest sooner.
4. Automatically save
Many employers give you the option to split your direct deposits into more than one bank account, so you can schedule a percentage of your deposit to go into savings and the rest into checking.
This automation makes it easy to save without having to think about it, which could help you work toward your savings goals more effectively.
source https://www.businessinsider.com/personal-finance/direct-deposit