Important points
Direct deposit allows you to receive your paycheck as an automatic deposit into your bank account. The majority of Americans receive their paychecks through direct deposit. Many banks offer benefits for receiving direct deposit, such as fee waivers and early paydays.
Direct deposit allows your employer to send your paycheck directly to your bank account, eliminating the need to deposit a paper check every payday. In a 2023 American Payroll Association survey, 95% of respondents said they were paid by direct deposit, making paper payroll checks almost a thing of the past.
While the main benefit of direct deposit may be its convenience, many banks offer additional perks to customers who receive payments this way, which could potentially save you money or get paid faster. We provide.
What is direct deposit?
Direct deposit allows your employer to deposit money directly into your bank account instead of giving you a paper check and depositing it yourself. This allows you to access your money faster and easier.
How direct deposit works
When you deposit a check into your account, your bank will contact the bank that issued the check to provide details of the transaction, including the amount of the check and whether there are sufficient funds in the payer’s account to cover the check. Check. This may take some time and you may not yet have access to your funds during this time.
With direct deposit, your employer electronically transfers your paycheck to your bank before your next payday, and your bank transfers the funds to your account on the scheduled date. As soon as payday arrives, your paycheck will appear in your account and you’ll have immediate access to it.
Many employers allow you to split your direct deposit into multiple accounts so you can set up an automatic savings plan. For example, you can instruct your employer to deposit $50 of each paycheck into your savings account and the rest into your checking account. This allows you to increase your savings account balance without having to manually transfer funds.
You can also receive other deposits through direct deposit. For example, you can often choose to receive your tax refund via direct deposit or set up direct deposit for your pension or Social Security payments.
How to set up direct deposit
Setting up direct deposit varies slightly depending on your employer, but your human resources or payroll department should be able to help you get started.
To set up direct deposit:
1. Obtain a direct deposit form from your employer. This form asks you to enter personal information such as your name, address, and social security number.
2. Enter your bank routing number and checking account number. The nine-digit routing number tells your employer which bank to send money to. On paper checks, it appears in the lower left corner and begins with 0, 1, 2, or 3.
The checking account number is used to identify your bank account. Like your routing number, your checking account number is located at the bottom of your paper check. This is the second set of numbers that appears immediately to the right of the routing number.
Routing numbers and checking account numbers can be found on the bottom of your check and are often also accessible through your online banking portal.
3. Provide the voided check if requested. Some employers may request voided checks to verify account information. That’s why we recommend bringing your checkbook with you when setting up direct deposit.
To invalidate a check, write “Void” multiple times in large or small letters in important fields such as the amount paid, amount paid, payee, date, and signature fields. That’s all. . You can also write “VOID” on the back if you wish.
How long does direct deposit take?
After you submit your direct deposit initiation form: After you submit your form to your new employer for processing, it may take one or two payroll cycles for your direct deposit to begin. If that’s the case, you’ll likely receive a paper check during that time.
Once direct deposit is initiated and running, it will take 1-3 business days for the funds to appear in your account after your bank receives your payment from your employer. However, banks that offer early direct deposit will have your funds available up to two days earlier.
Banks and challenger banks offering early direct deposit include Capital One, Chime, Current, Fifth Third Bank, and Varo Bank. These banks choose to release your money as soon as the transaction is completed, rather than making you wait until payday.
Benefits offered by banks for direct deposits
Banks may offer various benefits to customers who set up direct deposit into their checking account.
One of the most common perks is maintenance fee waivers. Some banks charge monthly fees for checking accounts, but they may waive the fees if you maintain a sufficient balance or receive regular direct deposits.
Some banks offer higher interest rates on checking or linked savings accounts if you meet certain requirements. This includes things like requiring a minimum number of debit card transactions and accepting direct deposits.
Early direct deposit is also a potential benefit. Banks offer early paydays that release funds one to two days before your official payday, as long as your employer transfers the funds in advance.
conclusion
Setting up direct deposit is usually easy and saves you time collecting and depositing checks each payday. In addition to being quick and convenient, direct deposit may come with benefits from your bank, such as early deposits, split deposits, and waived monthly maintenance fees.
— Freelance writer TJ Porter wrote an earlier version of this story.
