How does direct deposit work?

If you’re not part of the 94% of American workers getting paid via direct deposit, you’re missing out on one of the most popular forms of payment. It’s a secure, fast and convenient way to get paid. Simply defined, direct deposit is an electronic payment from one bank account to another. The benefits abound with this type of automated transfer, and it’s easy to get started.

Benefits of direct deposit

Below, we’ll explore five reasons you should make the switch to direct deposit.

1. Automated process

When you receive your funds through direct deposit, the funds are added to your account with no additional action required on your part. With a paper check, however, you must take the additional step of depositing or cashing the check. This can quickly become inconvenient if you’re too busy to make it to a bank.

2. Paper-free

With direct deposit, you can keep digital records instead of leaving a paper trail. You also do away with the risk of losing a paper check. Plus, it’s better for the environment when you go paper-free and automate your paychecks.

3. Save more

Automating your paychecks can positively affect how you manage your money. For example, you can set up your direct deposit to automatically transfer funds into different accounts, like your savings or an emergency fund. This makes it easier to save.

4. Pay bills on time

One of the fears that comes with automatic bill pay is that it might cause you to overdraft. Setting up direct deposit helps eliminate this worry since you can ensure you have money in your account when bill payments are withdrawn. Simply set up your automatic payments to occur a few days after each pay period.

5. Faster pay

With direct deposit, there’s no dealing with depositing a check and waiting for it to clear. Even better, if your normal payday happens to fall over a holiday weekend, you’ll typically receive your paycheck on the last working day before the weekend. Some banks even allow you to get paid before your normal payday.

How to set up direct deposit

If you’re new to direct deposit, you may be wondering how it works. Fortunately, the process is incredibly simple. To make money transfers through direct deposit, banks use the Automated Clearing House (ACH) network. Here are the typical steps to set up an ACH direct deposit:

1. Get the direct deposit form

Most employers offer a form you can fill out to set up your direct deposit. This form can often be completed online and is usually offered during the onboarding at a new job. If you don’t know how to access it, check with your employer’s HR department.

On the other hand, if you find that your job does not offer a direct deposit form, you may be able to acquire one from your own bank. You’ll need to submit this completed form to your employer or whoever is sending you funds.

2. Fill out the form

To fill out a direct deposit form, you are typically required to know the following information:

• Your bank's name
• Your bank's address
• Your account number
• Your routing number

You can find your routing number and account number by logging in to your online account, calling your bank or looking at the bottom of your paper checks.

3. Submit the form

Once you’ve filled it out, submit the form back to your employer. That’s it! You may want to ask how long it will take to receive your first direct deposit. Depending on your company’s policies, you may have to wait until after the first pay cycle before you receive your first direct deposit, so it’s a good idea to ask if you’ll be receiving a paper check for your first payday.

Make the switch

With so many benefits, it’s no wonder direct deposit is the most popular way to get paid in America.