Direct deposit provides several benefits over paper checks, including a greater level of security, faster deposits, a reduction in cost and environmental benefits. Some banking institutions even waive certain fees for accounts with direct deposit.

Direct deposit is also a convenient way to receive your pay each payday and one that should always be considered. In fact, some businesses require employees to enroll in direct deposit or offer a pre-paid debit card. However, these debit cards often accrue various fees for use. 

What is direct deposit? 

As an Automated Clearing House (ACH) type of transaction, direct deposit is a fast and convenient way to receive paychecks. Rather than receiving a paper check, funds are deposited directly into the checking or savings account that the arrangement is set up for. 

By enrolling in direct deposit, you can avoid future trips to the bank, eliminate the risk of losing a paycheck and your funds are often available immediately rather than having to wait one to two business days that a check would take to clear.  

Is direct deposit secure and safe?

Direct deposit is considered to be a more secure way of payment in comparison to paper checks. In fact, since the Social Security Administration (SSA) begun to utilize direct deposit in 1976, the administration has never lost a payment that was deposited into a beneficiary’s account via direct deposit. 

Utilizing direct deposit is also safer than paper checks as you eliminate the risk of check fraud or other related scams. It is estimated that check fraud costs financial institutions and Americans up to 4.3 billion dollars annually. 

Having Direct Deposit Saves Money and Reduces Harm to the Environment

One of the primary reasons that so many employers have begun to offer direct deposit options is because direct deposit provides a significant reduction in administration costs. It is estimated that the government alone spends an additional 51 cents per person in administration costs to process a check rather than provide an electronic transfer through direct deposit. 

In addition to the excess cost of paper checks, paper checks negatively impact the environment due to the amount of paper and ink that is used each day. By opting into direct deposit, you are helping to reduce the detrimental effect that receiving paper checks can have on the environment. 

Direct Deposit vs. Paper Checks

As an employee, one of the most enticing reasons to use direct deposit over receiving a paper check is that you can receive your money sooner after it has been deposited. When you take a paper check to the bank, it could take up to two business days for the check to clear and for the funds to become available on your account. 

If you are routinely paid on Friday, this means that you may not receive your pay until the following week, as weekends do not typically count as business days for financial institutions. The same event can occur when you receive a check on or right before a holiday. 

Maintaining direct deposit may be able to save you money depending on your financial institution. Most banks charge a monthly fee, commonly referred to as a membership fee or a monthly maintenance fee. In most cases, financial institutions are willing to automatically waive that fee each month, so long as you receive a minimum amount through direct deposit. 

If your checking account is currently being charged $10 each month to maintain the account, having direct deposit could potentially save you $120 per year just by choosing to receive direct deposit over paper checks. Furthermore, having a more consistent payment cycle can help you to avoid overdraft charges that could occur from automatic billing, which can provide several benefits to enrollees. 

Should you choose to enroll in direct deposit, you will be asked to provide the checking and/or savings account that you would like to receive your pay in. If you are interested in saving money, direct deposit can assist you in savings without a hassle. Simply designate a portion of your pay into your savings account. 

As stated previously, some employers may refuse to issue paper checks and can require employees to enroll in direct deposit or utilize a pre-paid debit card that is provided by the employer. However, these debit cards often include fees for usage, including for purchases and withdrawals at an ATM.

Learn How to Sign Up For Direct Deposit

Direct deposit is easy to set up for the first time. Most employers in the U.S. offer direct deposit, even when other payable methods are available. 

To sign up, you will need to provide your employer with your checking or savings account information, including your bank’s routing number and your account number. In some cases, you may need to provide your employer with a blank or voided check. Depending on your employer, you may need to complete a form with your human resources or payroll department. 

Once you have enrolled in direct deposit, it can take up to a few weeks to begin receiving deposits automatically in your checking or savings account. Therefore, you may still receive one more paper check before your payments begin depositing automatically into your account, depending on when you submitted your direct deposit request. 

About Government Benefits and Direct Deposit

If you are currently receiving government or state benefits, you may be able to set up those benefits to depositing automatically within your account through direct deposit. This can help you to track your benefits as well as easily submit a dispute in the event that a discrepancy arises, such as in the event of an overpayment or underpayment. 

You may already be receiving government benefits directly to your checking or savings account, such as with payments from the Social Security Administration or Department of Veterans Affairs (VA). In addition to these benefits, some states allow Unemployment Insurance benefits to be transferred directly to a checking or savings account. 

Receiving government benefits, such as unemployment benefits, through direct deposit offers a lot of the same benefits as choosing direct deposit for payment as an employee. However, these government programs will also offer an alternative form of payment, such as a pre-paid debit card. These pre-paid debit cards, like employer-provided pre-paid cards, often accrue various fees through use.