Direct Deposit

Direct Deposit
Direct deposit is a payment method in which funds are transferred electronically to a recipient’s account.

What is Direct Deposit?

With direct deposit, you receive money electronically rather than in the form of a check. It’s a common method of payment that many employers offer their employees. If you choose to use direct deposit, your employer will transfer your pay “directly” – meaning electronically – to your bank account each pay period. Direct deposit is also a common way for people to receive Veterans’ Assistance benefits, social security, and tax refunds.

How does Direct Deposit work?

Setting up direct deposit with your employer is a fairly straightforward process. First, your employer will ask you to submit a voided personal check. The check provides your bank’s identification number and your account’s routing number. If you don’t use personal checks, you can ask your bank for a direct deposit enrollment form, which will provide the necessary information.

To use direct deposit, many companies require you to have a checking or savings account. If you don’t have one, you might be able to use a payroll card as an alternative. If this is the case, ask your employer if they can provide you with one. If they don’t have one, you can order a payroll card online through a major payment processor like Visa.

Are Direct Deposit funds available immediately?

Direct deposit funds are typically available the morning of your payday. In some cases, you can withdraw them prior to your bank’s business hours. In other cases, you might have to wait until your bank opens.

What does “Direct Deposit pending” mean?

If you check your bank account online, you might sometimes see a message that says “direct deposit pending.” What this means is that your deposited funds are on hold. The usual reason for this is that your bank is verifying the deposit. In special circumstances, some banks hold the deposit for up to seven business days.1

Why choose Direct Deposit?

You may find that direct deposit reduces hassle. Since your employer transfers your paycheck directly to your account, you don’t have to go to the bank yourself. Also, there’s no chance that you’ll misplace a paycheck or forget about it.

In addition to reducing hassle, direct deposit can help improve your financial planning. You can choose to deposit some of your payment into a savings account to help you spend less and save more. To do this, check with your employer to see if they offer this service. If they do, you’ll choose between depositing a set amount (like $25) or a percentage (like 20 percent) of your deposit.

Is Direct Deposit safe?

Direct deposit is widely considered safer than traditional check payments. When you’re issued a physical check, it travels through many hands, and is therefore subject to greater risk of identity theft. With direct deposit, payments are far less likely to be lost or intercepted, as multiple levels of security are in place to protect your privacy.

Is Direct Deposit ever a bad idea?

Direct deposit is generally considered a good thing for employees. For them it’s a convenient perk, but for employers it can sometimes complicate the payment process. For instance, direct deposit requires that employers continually update their master employee file. It also is not an entirely paperless system, as employers have to create an authorization form. Also, it affects cash flow by shortening the amount of time that funds are kept in the employer’s possession.2

References:

  1. TD Bank. (2015, May 5). If a deposit is pending does that mean it is not available in my account? Retrieved from https://www.tdbank.com/tdhelps/default.aspx/if-a-deposit-is-pending-does-that-mean-it-is-not-available-in-my-account/v/40767983/
  2. Lang, Beverly. (2013, August 29). Direct deposit – the good and the bad. Retrieved from http://www.intuitiveaccountant.com/payroll_merchant_services/direct-deposit-%E2%80%93-the-good-and-the-bad/#.WLYJ8BLytTY