skip to main content

See the results of our 2022 Personal Finance Study!

Why Set Up Direct Deposit?

Andrew Tavin, CFEI
Andrew Tavin is a personal finance writer who covered budgeting with expertise in building credit and saving for OppU. His work has been cited by Wikipedia, Crunchbase, and Hacker News, and he is a Certified Financial Education Instructor through the National Financial Educators Council.
Read time: 4 min
Updated on November 4, 2022
Direct deposit can be a convenient tool, both for paying bills and getting paid.

It can be nice to have an automatic option, especially when it comes to important stuff you don’t want to forget. Many people would agree that paying your bills on time and receiving your paycheck on time are two checklist items that would fit under the label of “important stuff.”

That’s why it could be a good idea to set up direct deposits for receiving your paycheck, tax refund, or any other money coming your way. You can even set it up to deposit money into a savings account.

What is direct deposit?

A direct deposit is an electronic transfer of funds and can be one of the more simple payment options -- at least once it’s been set up. There are even options to set up a direct deposit without a bank account, though they tend to come with extra costs.

How can you set up a direct deposit?

The specific steps for setting up a direct deposit will vary by situation and institution. Generally, you’ll need an account number and routing number from your bank, credit union, or other financial institution as well as your social security number or taxpayer-identification number. The account and nine-digit routing numbers can usually be found on personal checks from your bank or when you log in to the bank’s website.

For example, if you want to receive your income tax refund by direct deposit instead of via snail mail in the form of a physical check, you can provide your account information to the IRS when you file your tax returns, as explained here.

Direct deposit can also be used for some federal benefits, like social security payments. Certain state-level payments like retirement benefits can also be made through direct deposit. You’ll have to look up specific information about your state and relevant programs to see if they offer the option to enroll in direct deposit.

Is it safe to set up direct deposit?

Of course, you need to be careful when handing out your direct deposit information, since it does include your personal data and information. If you’re giving it to an employer or a utility company, or even to the federal government, you’ll want to make sure the payer or payee is truly who they say they are, or you could be opening yourself up to identity theft.

Can you set up direct deposit without a bank account?

All of this direct deposit stuff sounds nice, right? You don’t have to worry about losing paper checks or potentially missing a bill payment because your paycheck hasn’t arrived.

But what if you don’t have any banking information available?

If you can’t qualify for a traditional checking account due to your financial history, there are other options you can still consider, like a second-chance bank account or a co-signer. If none of those options are available to you, or if you’re more of a “money-under-the-mattress” type of person, you might still be able to take advantage of direct deposit.

The U.S. Treasury Department’s Go Direct program offers a “Direct Express Mastercard'' that can be used to receive federal benefits. There are also options to consider for the many payments that are not government benefits.

Paypal, for example, isn’t just a simplified alternative for online banking and electronic payments. They also offer a prepaid debit card that can be used to receive direct deposit payments. It’s important to realize, however, that banks offer many benefits beyond access to direct deposits that a Paypal debit card or similar card does not. One example is FDIC insurance, which means that if a bank has funding problems, that shouldn’t affect your money. If you had a debit card provider that was not FDIC-insured and somehow disappeared, well … you could be in some trouble then.

How does direct deposit work?

On a basic level, once you’ve set up your direct deposit, the funds will enter your account within some number of business days of your payday. These payments, as well as many other kinds of one-time electronic payments, are handled by the ACH or Automated Clearing House network.

Setting up a direct deposit is often quite simple, and it can make your life simpler as well. You don’t want to worry about paying your bills on time due to a lost paycheck, so it’s important to make sure you get paid when you can.

California Residents, view the California Disclosures and Privacy Policy for info on what we collect about you.