How to Set Up Direct Deposit

Bank deposits can equal a major hassle. To deposit a check, you’ll usually have to make your way to the bank, wait in line for a teller and then wait for the check to clear. Alternatively, you could use a check-cashing service to directly receive your check amount in cash, minus a fee. Or you can use a prepaid debit card, but that can incur fees, too.

An additional way to deposit a check is to do so electronically. Electronic payments are cleared by the ACH (Automated Clearing House), which is an international network of monetary institutions.

What is Direct Deposit?

Direct deposit is a form of electronic payment that deposits money directly from one bank account to another. It is typically used by employers to send salaries and/or wages to employees. In fact, over 80% of employees in the United States get paid via direct deposit.

Once established between the employee and the employer, direct deposit automatically and regularly deposits your salary or wages into your checking and/or savings account. It is an optimal financial resource, as it solves the problems that come with paper check deposits and using extraneous deposit services. It is quite simple to set up.

Why use Direct Deposit?

• It’s automatic. You never have to worry about making it to the bank during business hours and waiting in line. Direct deposit saves you time because it makes automatic deposits when you get paid by your employer.
• It’s fast. Depositing a paper check takes a couple of days to clear and you may have to wait for an additional time period to spend it. With direct deposit, there is no need to worry about waiting for checks to clear to spend the deposit. The deposit to your account happens instantly.
• No need to use a check-cashing service or prepaid debit card. Check-cashing services and prepaid debit cards allow you to quickly access the money paid to you while avoiding the use of a bank, but they come with fees. Fees with these services are typically around $1-$10 per deposit and can add up, especially if you regularly receive wages. Although direct deposit requires a bank account, it eliminates the need for these methods and you can save yourself the fee. 
• It’s secure. Since direct deposit happens electronically, no paper check will get misplaced, damaged, or stolen. Direct deposit also eliminates the possibility of fraudulent check and payroll activity.
• Electronic records are available. Bank statements will be available electronically, making it accurate and easy to access your finances.
• It saves money. Direct deposit often waives certain bank fees, such as minimum balance and maintenance fees. Your bank may also offer benefits when you have direct deposit, such as a higher interest rate on your accounts. Businesses that use direct deposit to pay their employees also save money because they would otherwise be covering paper, labor, and mailing costs to manually send wages.

Steps to Get Paid by your Employer via Direct Deposit

• Request a direct deposit form from your employer. Approach the human resources or payroll department from your company and request a form. Direct deposit forms are short and easy to fill out.
• Fill out a form. The form will ask you for personal information such as your name, address, and social security number. You will also need to provide your bank account number and the routing number(s) of accounts you want your deposits to go to.
• Customize deposit location and amount. Indicate whether your deposit will go to your checking or savings account. You can also distribute the deposit amount across multiple accounts. For example, you can designate 20% of your deposit to go to savings and 80% to go to checking.
• Submit the form to your employer. Make sure your information is correct and submit your direct deposit form. Some employers require a voided check or deposit slip to verify your bank information.

Different Ways to Use Direct Deposit

Receiving wages from an employer aren’t the only ways to use direct deposit.

• You can pay employees. If you are a business owner, you can pay your employees via direct deposit. With no need to manually input and keep track of employee payrolls, this can save you time and administration costs so you can focus on growing your business.
• Pay bills and taxes automatically. You can set up an automatic direct deposit to pay your bills and taxes so you never miss a payment.
• Tax refunds will directly deposit to your account. Instead of waiting for your refund check to come in the mail, direct deposit will instantly deposit the amount into your account as soon as it is available.
• Social security benefits will be directly deposited. Beneficiaries are actually required to receive payments electronically. Direct deposit is one of the most common ways to receive social security benefits.

Final Thoughts on Direct Deposits

If you've never used direct deposit, it could take some time to grow accustomed to it. In the end, it solves the problems associated with paper paychecks and/or having to go through a check-cashing service. Direct deposit saves time, money, and it is more secure when compared to alternative options.

In an era of instantaneous communication and information, it seems natural to follow suit with the way people get paid. The technology used for direct deposit has only become widely available for around 20 years, with international ACH transactions becoming possible as recently as 2009. As more Americans and businesses use direct deposit, the benefits of these technologies establish themselves as staples of modern life.