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Direct deposit is a free service that sends your paychecks or benefits checks to a bank account or prepaid debit card of your choice.
You can also avoid monthly checking account fees by getting direct deposits from Chase, Bank of America, Wells Fargo and other banks. Many sign-up bonus offers from banks require direct deposit.
See the best bank bonuses here…
Here is all the information you need to know about setting up direct deposit at your bank.
About Direct Deposits
When a person gets a direct deposit, the payer sends an electronic payment that goes straight into the person’s checking account. The money can be sent without a physical check or a trip to the bank by either party.
This way of getting paid has become very common. Since direct deposit happens automatically, it’s more convenient for the employee, who doesn’t have to do anything to get their paycheck on payday, and cheaper for the employer, who doesn’t have to spend money printing and delivering paper checks.
How Do Direct Deposits Work?
An employer starts by getting their employees’ and vendors’ banking information, such as their bank account number and bank routing number. This is part of the information your employer probably got from you during the process of bringing you on as an employee.
Usually, the company sends its payroll instructions to its bank one or more business days before payday. The bank then sends this information to the Automated Clearing House (ACH). The ACH operator sorts the ACH transactions and makes sure that each instruction goes to the right bank for each employee’s paycheck.
When the employees’ banks get the ACH instructions, they process the payment and put the money in the employees’ accounts.
Who Uses Direct Deposit?
People often think of payroll when they think of direct deposit. Employers save money and time when they switch to an all-electronic system, so that’s where most people first hear about direct deposit.
But you can get direct deposits from more places than just your employer.
The U.S. government, in particular, prefers to pay people through direct deposit instead of paper checks. All Social Security payments are made through direct deposit or a prepaid debit card. You can also choose to get your tax refund electronically deposited into your bank account instead of waiting up to six weeks for a paper check.
Also, many private companies, independent vendors, utilities, leasing agents, charities, and other groups offer both paying and receiving direct deposits.
Why & How Direct Deposit Is Used
Direct deposit can be used for more than just paying employees. Here are some of the other ways it can be used.
Paying Bills
Direct deposit can be used to pay some recurring bills, like rent or utilities. Most of the time, bank customers set up this kind of direct deposit through their bank’s “bill pay” feature.
Independent Contractors
A self-employed person who does “work for hire” for a client is an independent contractor. Legally, the client is not an employer, so they do not have to take taxes out of the contractor’s pay. Also, the client doesn’t pay the contractor on a regular payroll schedule. Instead, they pay when they get an invoice.
Independent contractors are usually paid by check, but it can be good for both the workplace and the contractor to set up direct deposit for them. It makes sure that the contractor’s payments, which tend to be irregular, are at least transferred directly instead of waiting for the check to arrive, be deposited, and then be cleared.
Benefits from Social Security
As of 2013, all Social Security benefits are paid directly into the bank accounts of the people who get them. The Social Security Administration estimated that switching to direct deposit would save taxpayers $120 million per year, or $1 billion over the past 10 years.
The direct deposit system doesn’t work for people who don’t have a bank account, though. People in this situation get their money through a prepaid debit card.
Tax Refunds
The IRS says that the fastest way to get a tax refund is to file your taxes online and choose direct deposit. When you use e-file and direct deposit, more than 9/10 refunds are processed within 21 days. Paper checks can take much longer. Also, the IRS will let taxpayers have their refunds directly deposited into up to three different bank accounts.
Paying for kids
Direct deposit can be a simple, easy, and safe way to get payments for child support. Most of the time, parents who have to pay child support by court order will sign up for direct deposit through their state. With direct deposit, you don’t have to wait for paper checks to arrive in the mail, and there are no fees for getting paid.
How Safe Is Direct Deposit?
People worry about safety when they use direct deposit. But this way of getting paid is usually one of the safest ways to get paid.
Checks vs. Direct Deposit
Cash or a paper check can be lost or stolen, but a direct deposit can’t. Also, someone could cash a check that wasn’t made out to them. If you lose a paper check, the person who gave it to you may charge you to get a new one.
There are none of these possible safety problems with direct deposit. The money can’t be lost or stolen because it goes directly from the payer’s account to yours.
How Long Does It Take For Direct Deposit?
The best thing about direct deposit is that it saves you a lot of time. You won’t have to go to the bank every time you get paid because of this process.
ACH transfers can sometimes take up to four business days to complete. But most employers will start the ACH transfer early enough to make sure the money is in the employee’s bank account on payday.
Many employees can expect their paycheck to be directly deposited into their bank account at 12 a.m. the day before they get paid. On payday, you might get your money long before you get to work. This is true even if you can’t get to work on payday because you are out of town or for some other reason.
Payments from the federal government are also set up in a way that makes it easy for people to know when to expect them. For example, you get your Social Security benefits on the second, third, or fourth Wednesday of every month, depending on when your birthday is.
For other types of direct deposit, you can usually expect the money to show up within one business day, but sometimes it can show up the same day.
Why You Should Make The Switch
If you still get paper checks as payment, there are a number of reasons why you might want to switch to direct deposit instead.
Paper checks are much more trouble than automated payments. Even though mobile check depositing means you don’t have to go to the bank to make a deposit, you still have to wait for your paper check to arrive before you can deposit it. Also, a paper check that you deposit may take longer to clear your account.
Signing up for direct deposit is a way to go digital and save money and time. The payer doesn’t have to cut checks out of paper and mail them, which saves money and helps the environment. This decrease in paper waste is also good for the person who is getting paid.
Digital payments are also safer than paper ones because they can’t get lost in the mail, be sent to the wrong person, or be cashed by thieves.
How to Set Up Direct Deposit
Ask Your Employer For A Direct Deposit Form
Ask for a direct deposit form in writing or on the web. If that’s not an option, you could ask your bank or credit union for one.
You have to get your Social Security or other federal benefits through direct deposit or a Direct Express prepaid debit card. Visit GoDirect.gov or call (800) 333-1795 to sign up.
Here are the direct deposit forms from major banks:
- Chase direct deposit form.
- Bank of America direct deposit form.
- Wells Fargo direct deposit form.
- Citibank direct deposit form.
- U.S. Bank direct deposit form.
- Capital One direct deposit form.
- Discover bank direct deposit form.
Fill Out Your Account Info
You usually need to give the following information about yourself and your bank account:
- The address of the bank. You can find this information on your bank statement or on the website of your bank. If you use the direct deposit form at your bank, you’ll probably need the address of your employer.
- The routing number of a bank. This is the nine-digit number on the bottom left of your checks or on your bank statement. It is also called the American Bankers Association, or ABA, number.
- The number of your account. This is the next number on the bottom of your check after the routing number. You might also find it on a deposit slip or a statement from your bank.
- Account type. This is usually your checking account or savings account. Your direct deposit will go there.
- Other. Some forms will also ask for your Social Security number or mailing address.
Check The Amount Of The Deposit
You can choose to put the whole check into a checking account, but splitting the direct deposit into two or more accounts is better. If you can put, say, 20% of your paycheck or benefit check into a high-yield savings account, you can save money every month without having to think about it. See our list of the best online savings accounts to find the ones with the highest interest rates.
If Needed, Attach A Voided Check
Some employers check the account and routing numbers with a voided check. If you’re asked to do this, write “VOID” across the front of a blank check. This makes sure that if the check gets lost or stolen, it can’t be used.
Send The Form In
Give the form to your employer and wait for the direct deposit to start. It could take a few weeks, so check your bank account often.
Direct deposit is a useful service that lets you get your hard-earned money faster and safer than with a check. Setting up the automatic deposit will take some time. But in the long run, you’ll save time by not having to go to the bank to cash checks or wait for them to clear.
Direct Deposit Frequently Asked Questions (FAQs)
How to direct deposit into someone else’s account?
Traditional direct deposits can be hard to make into someone else’s bank account because you need their account number and routing number, which most people are understandably reluctant to give out.
But there are a few ways to transfer money electronically from one bank account to another:
- Online transfer between banks. Some banks let account holders send money to other people using only the email address or phone number of the recipient.
- Peer-to-peer online transfer. With apps like Venmo, PayPal, CashApp, and Zelle, you can send money to someone else’s bank account without either of you needing to know the other’s account information. There may be fees for these options, and you may only be able to move a certain amount of money per day.
- Wire transfer. If you need to deposit a lot of money, you can use a wire transfer to get the money to the other account in less than one business day. For this service, expect to pay between $15 and $50.
How long’s it take to get unemployment via direct deposit?
States can provide unemployment benefits via direct deposit or via a state-issued prepaid debit card. Some states still give out unemployment checks on paper.
When it comes to getting paid, direct deposit is usually the fastest way to get unemployment benefits.
What about banks that can receive my pay up to two days early?
This feature, called “early direct deposit,” is now available at some banks and credit unions. It lets the account holder get the money as soon as the payer releases the funds. Traditional banks have always taken between one and two days to send direct deposit funds to the customer.
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