What to Know About Direct Deposits

Information verified correct on March 10th, 2020

Direct deposits of paychecks have been an option for decades and, though many employees have signed up for the service, many more remain hesitant. They often express vague concerns about the money not getting to where it should go and continue to opt for what they see as the more secure paper check option. No system, of course, is perfect, but direct deposits offer the most convenience and security of any paycheck delivery choice.


How to Sign Up

Signing up for a direct deposit is simple. All you need to do is contact your employer and tell them you want to have your paychecks directly deposited into your bank account. They will provide you with the paperwork needed to set it up. All you will need is a voided check, from which you will provide your bank’s routing number, your account number, and the check number. Your employer will use this information to set up a link to your account so they can directly deposit your paycheck.

Benefits of Direct Deposit

There are numerable benefits to using direct deposit. First, there is no possibility of lost or stolen checks, which can turn into a headache to replace and cause you to fall behind on your bills. Furthermore, the money will automatically deposit in your bank account, so you don’t have to worry about getting to the bank or an ATM to deposit it.

Nor do you have to wait for the check to clear before you can start drawing on it. If you are paid on the first of the month, the money will be available on the first. Or if your pay date falls on a holiday or a Sunday, the money should be deposited the day before.

If you are concerned about saving money, employers will usually give you the option of dividing your paychecks with part going to your checking and part going to your savings. You won’t even have to think about it, making saving much easier. And if you want to think practically about it, using direct deposit saves your employer money. No more expensive paper checks to cut means more money for other things like benefits and raises.

Drawbacks of Direct Deposit

For most, the benefits of direct deposit outweigh the drawbacks, but you should be aware of some possible issues related to it. First, it usually takes a couple of pay periods for direct deposits to kick in. And once it does begin, you must know when the money will be deposited. Banks won’t hesitate to charge insufficient fund fees if you use your debit card one day early.

One of the biggest drawbacks to direct deposits is changing banks. This can be a hassle as it will again take a couple of pay periods to update your account. You will have to leave your old account open until the direct deposit is transferred. This can also be an issue if your account is frozen due to fraud.

Despite these issues, direct deposit is still the preferred way to receive paychecks. It removes the time and effort necessary with paper checks and is more secure. Anyone still dragging their heels should try it out and see what they’ve been missing.

Phil Kirsten

As a writer for loansradar.com, Phil Kirsten specializes in personal finance, with her passion centring on helping people find better for whatever they're looking for.

Ask a Question

You are about to post a question on loansradar.com

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • loansradar.com is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked

Disclaimer: At loansradar.com, we provide factual information and general advice. Before you make any decision about a product, read the Product Disclosure Statement and consider your own circumstances to decide whether it is appropriate for you.
Rates and fees mentioned in comments are correct at the time of publication.
By submitting this question, you agree to the loansradar.com privacy policy.