Whether you receive a salary, government benefits, or other types of funds on a regular basis, chances are you're being paid through direct deposit.
A direct deposit is a type of electronic payment that is automatically transferred directly into a payee’s account from a payer. Read on to learn about what it is, how it works, and some of the possible benefits.
Direct deposits are electronic, automated transactions that are approved by the payee ahead of time and fully managed by their bank or account provider. Most popularly done to receive payment from an employer, an employee would share their account information with their employer, who would then send payroll instructions to their own bank, which then passes the information on to an electronic network called the Automated Clearing House (ACH). ACH then directs payments to your account provider for processing.
Direct deposit can have appealing, time-saving benefits for both employees and employers. If a payee has direct deposit set up, they will receive funds into their account automatically. This can help alleviate the stress of having to find time to physically go to a bank or stop at an ATM.
It can also eliminate the risk of payment getting lost or stolen in the mail, or getting delayed if a hold is placed on the funds after they're deposited.
Plus, with electronic payment, pay stubs can be digitally stored as well, saving the headache of having to find physical records later.
For employers, some benefits might include savings on payroll, printing, and mailing. The automated process can help ensure payments are made accurately and on time, which has the potential to lead to higher employee satisfaction. It's also considered a much safer process than mailing out checks, as the funds arrive directly into the payee’s accounts with no possibility of being intercepted. Knowing exactly when their accounts will be debited for payroll expenses may also help employers better manage their own finances.
Setting up direct deposit includes a series of steps and is often facilitated in an onboarding process when beginning work for an employer — though most employers allow for set up at any time during employment — or when selecting a payment method to receive funds.
Regardless of who the payer is, the process for a payee to set up direct deposit is generally the same. Here’s an example set of steps:
If using a method outside of an employer-run system, such as email, it is wise to double check that it is being handed off to the correct person at your employer — generally a payroll department or HR contact.
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