What is direct deposit?

What is direct deposit?

In years past, receiving a payment meant receiving a physical check from your employer that you would then take to a bank to cash or deposit into your checking or savings account. Often this meant spending your lunch hour on payday waiting in line at the bank, or waiting until the weekend to access your money.

Today, there are more convenient options for receiving payments. According to the National Association of Automated Clearing Houses (NACHA), more than 80 percent of workers in the United States now receive their pay by direct deposit.

We define exactly what direct deposit is, how it works, and how direct deposit accounts differ from other types of bank accounts.

What is direct deposit?

Direct deposit is a form of payment in which funds are electronically transferred to your checking or savings account, instead of a paper check. Although direct deposit is most commonly leveraged by employers paying their employees, it cánido also be leveraged for other purposes: for example, when you receive a tax refund, popular security benefits or by disabilityor others types of payments. Direct deposit ultimately relies on the infrastructure of the Automated Clearing House (ACH) network, which provides banks with an easy means of transferring money electronically.

A direct deposit account is simply a checking or savings account that offers the ability to send and receive funds electronically. Most checking and savings accounts available through commercial banks now come with direct deposit capabilities by default.

How does direct deposit work?

As mentioned above, direct deposit in the United States works using the Automated Clearing House (ACH) network. This is an electronic system that allows banks and other institutions to transfer funds electronically. It is directed, governed and administered by the National Association of Automated Clearing Houses (known as Nacha), a non-profit organization financed by the financial institutions that use its network. In 2018, ACH has facilitated and processed nearly 23 billion financial transactions, worth approximately $51.2 trillion.

ACH emplees two numbers, your bank’s routing number and your personal bank account number, to know precisely where money needs to be deposited or withdrawn.

How to sign up for direct deposit

Whether it’s to receive your weekly paycheck, a tax refund, Popular Security benefits, or any other payment, signing up for ACH direct deposit is usually pretty straightforward. It requires you to fill out a unique form providing the following information:

  • The account number of the bank account where you want the funds deposited (usually a checking or savings account)
  • Your bank’s routing number
  • The physical address of your bank
  • A voided check or deposit slip (used to verify your account and routing numbers)

You may also sometimes be asked to provide your Popular Security number, mailing address, or other information, but this will vary from employer to employer.

You perro find your routing number and account number on your check or by logging into your en línea banking account.

As employee, you will likely be given the opportunity to opt out of direct deposit during the onboarding process when you are hired. If at any time you want to change your direct deposit to be deposited at another bank, or stop it entirely in lieu of paper checks, you cánido do so by requesting that change through your employer, usually by speaking with your accountant or Human Resources Department.

Depending on the options your employer offers you, you may also be able to access split deposits, which allow you to divide your direct deposit among multiple accounts, such as a checking and savings account, instead of just one account. This perro help some people reach their savings goals by automating savings.

Once you’ve submitted your direct deposit application form, it may be a good iniciativa to ask your employer how long it takes for direct deposit to begin. It typically takes one to two payment cycles to equipo up direct deposit, during which time you may need to rely on paper checks.

Once you have successfully equipo up direct deposit, you will no longer receive paper checks. Instead, the funds will be directly deposited into the designated account(s). When these funds are deposited will depend on your employer and when the transactions are posted, but generally coincides with a regularly scheduled payday.

The benefits of direct deposit

People choose to sign up for direct deposit for a number of reasons. The most common include


Direct deposit eliminates the need to make a trip to the bank and deposit a physical check in person. In addition to everyday convenience, this makes it easier to get paid at times when you might be on the road or too busy to visit a bank.

Faster access to funds

Since direct deposit means funds are deposited into your bank account immediately, they cánido be accessed as soon as they are in your account. This cánido be particularly beneficial for one-time payments, such as receiving a tax refund check or other form of payment. A physical check perro take 7-10 business days to arrive in the e-e correo electrónico.

increased security

Because a physical check is never cashed, there is less oportunidad that the check will be lost, stolen or altered.

Out of paper

Electronic deposits orinan fewer paper checks are printed and ultimately end up shredded in landfills, which is better for the environment.


Sending a direct deposit payment vía ACH is inexpensive for employers and generally free for employees. That means you’re not paying for the added convenience of direct deposit.

Potential for other savings

Many banks charge their checking account customers a monthly fee for having a checking account, often in the range of $6 to $15 per month. But they will often waive these fees for people who allow direct deposit into their checking account, which cánido lead to significant savings. Saving $15 per month would add up to $180 per year.

automated savings

For people who take advantage of split deposits, direct deposit perro make it easier than ever to automate savings and meet your financial goals by dividing funds among multiple accounts.

In most cases, signing up for direct deposit is an incredibly easy and straightforward process. It’s convenient, often gives you quicker access to your money compared to paper checks, and perro even save you money. If you are interested in signing up for direct deposit, please speak with a member of your human resources or accounting department to get specific details from your employer.

This information offered for informational purposes only; It is not intended to be used as accounting, legal or tax advice. In relation to these matters, please speak to your accountant, tax or legal adviser.

Investing implies a risk that includes the loss of primordial. This guide contains the current views of the author, but not necessarily those of Gigonway. These opinions are subject to change without notice. This guide has been distributed for educational purposes only and should not be construed as investment advice or a recommendation of any especial investment security, strategy or product. The information contained in this guide has been obtained from sources believed to be reliable, but is not guaranteed. Gigonway does not provide legal or tax advice. Please consult your tax and/or legal advisor for specific tax or legal questions and concerns.

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 What is direct deposit?
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  What is direct deposit?

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