It is very important for any employee to be able to receive the money right away, but traditional checks can create a lot of troubles for you, such as delays of delivery and the need to go to the bank to cash your check.
Direct deposits are a much faster way of receiving your money, and they can be done without the need to make additional trips to your bank.
In this article, you will find out a bit more details about what a direct deposit is, how it works, and what benefits it can bring to you.
Definition of Direct Deposit
Direct deposits help to make the transaction process much easier for you, as they add an automatic feature: using a direct deposit means that you will not need to go to the bank, as all the payments would be electronically transferred to your checking or savings account.
The American Payroll Association states that nearly 94 percent of American workers receive their payments with the help of direct deposits.
In most cases, you would use direct deposits to receive your payroll checks, and this should be discussed with your employer. But you also can apply direct deposits for your tax refunds or any other payments that you need to apply this function to.
The main benefit of direct deposit checks is the fact that you can always expect your payments to be transferred on your payday, which is not a common thing for traditional checks. In addition, it is more economical and eco-friendly, as your employer would not need to write endless checks every day.
How Does a Direct Deposit Work?
The way direct deposits works is quite simple: you simply will need to provide your employer that you would like to receive direct deposits and provide your bank account information or a void check for your first deposit to be placed. After that, everything will be done automatically and without your participation.
Now, every 1-2 business days before your payday, your company will send payroll instructions to its financial organization that in turn tells about the requirements to the Automated Clearing House or ACH. Then all that is left to do is for your employer to send your salary amount to the bank, which will send the money to you.
Also, note that direct deposit checks can be used for investment dividends, tax refunds, retirement payments, and so on.
A Little Warning About Federal Benefits
USA federal law requires federal benefits, such as tax refunds and credits to be received by citizens electronically. In this situation, direct deposit is the fastest and safest way that you can use for such transactions. IRS states the same, as 8 out of 10 taxpayers prefer direct deposits over any other payment method.
As with salary payments, benefits will also be received by you on the same day as that should have been. And if you are wondering whether you can use direct deposits for such payments, you can, as long as you are a citizen of the USA that has such payments from the government and an open bank account.
What is more, if you have children and are eligible for Child Tax Credit for 2021, you can also use direct deposits for this payment. The IRS even encourages the citizens to proceed with their transactions through direct deposits.
In addition, the IRS has improved its Child Tax Credit Portal, so that you could update your bank information online and receive the direct deposits further on.
Other methods of receiving benefits will definitely have a longer waiting period, as they do not always provide you with the money on time.
Time Frame of Receiving Direct Deposits
In general, the time frame of direct deposits is much faster than the one of the physical checks, but it still will depend on where the money is coming from.
Please note that when getting a new job, it can take from 1 to 2 pay cycles for the direct deposits to finally work. For this time, you still may need to wait for the physical checks, but after that, you can use direct deposits.
After that, the time frame within which you will receive your money will vary depending on payroll software and the date when the payment is submitted by your employer.
This might be a problem for people with automatic transfers placed on their account: for example if you did not get your money until 9 a.m. on a business day, but your automatic transfer is scheduled earlier than that. In this situation, you will need to find out the exact time when the payroll will be available for you, and then place your automatic transfers for bills after this time.
Setting up a Direct Deposit
Whether it is done through your employer or another company, there is no big difference in the process of signing up for direct deposits.
They may have different forms that would need to be filled out, but in general, you will have to provide the employer with the following types of information:
Bank routing number
Number of the account to which you would like the funds to be sent
A routing number is like a specification of the neighborhood to which the funds should go, and account number – the exact house. This information helps the employer and your bank to send the money exactly to the account that is supposed to receive them.
In general, the information that you provide for the direct deposit form is quite confidential and important, so you need to be very careful when giving it to other people. When working in a usual office, hand the form directly to the payroll employee, and when submitting the form in an online format, use a secure file transfer, not the usual email.
Advantages of Direct Deposits
Now, let us summarize what pros we have learned about direct deposits together with some new advantages of this method.
1. Faster Access to the Money
The employer will send your paycheck to the bank a few days earlier than it is supposed to so that a bit more time for processing the information would be available.
And as soon as the transaction is ready to be made, the bank will send you the money in full, which means that not only can you receive the money on your payday, but, if lucky, even earlier.
2. Safer Transactions
Not only does this method save your time by eliminating the need to go to the bank, it also provides your assets with higher security, as all of the transactions are made electronically.
This means that there are lower chances for your check to be stolen or lost with direct deposits, in comparison with the usual checks.
3. A More Efficient Payroll Process
As direct deposits allow the transactions to be made online, it creates an opportunity for your employer to send your salary faster, as there is no need to sit and write out every check.
In addition, the Payroll Department of your company will have a lower workload as the money would be paid directly to you, which, again, means faster processing.
You can also set up a plan for your salary to be divided and sent to multiple accounts. For example, 50 dollars out of your every paycheck could be sent to your savings account and the rest – to your usual one. This allows you not to worry about doing this division manually.
4. An Opportunity to Waive Bank Fees
Many banks charge monthly maintenance fees for your accounts, but direct deposits might eliminate them. For example, your bank will waive their fees if you maintain a sufficient balance on your account, or receive monthly direct deposits.