How to set up direct deposit to a checking or savings account

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In a Nutshell

Roughly 94% of American workers receive their paychecks via direct deposit, according to the American Payroll Association. Here’s how to set up direct deposit so you can get your hard-earned money faster, and directly into your bank account.

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If you’re living paycheck to paycheck like many Americans, the sooner you receive your income, the better.

Direct deposit into a checking or savings account is the most popular way to receive a paycheck, and it’s faster and safer than getting a paper check. A deposited paper check could take days to fully clear your account. But having a paycheck directly deposited into your account may mean your funds are available on payday.

Let’s look at what direct deposit is, how it works and how to set it up with your employer.



What is direct deposit?

Direct deposit is a form of payment in which one party transfers funds electronically to the financial account of another. With direct deposit, you don’t need to deal with paper checks and the hassle of depositing your paycheck and waiting for the funds to be ready for use.

Many employers allow direct deposit of paychecks, and some may require it — although they can’t specify which bank you use to receive the deposit. You can often also choose direct deposit for other types of payments such as a tax refund, retirement funds, unemployment benefits or Social Security benefits. If you have direct deposit set up with your checking or savings account, you may even be able to split your paycheck among more than one account — giving you easy access on payday, or possibly even before. 

How does direct deposit work?

To transfer money via direct deposit, financial institutions use the Automated Clearing House network, or ACH — an electronic payments system that facilitates money transfers.

Once your employer has your bank account information, it can initiate payments based on your paycheck. At that point, the money is transferred from the employer’s bank account to yours.

As soon as that money is deposited into your account, it’s usually available immediately for withdrawal or debit card use. That’s a lot different from depositing paper checks, where your bank may hold some of the funds to verify that the check is good.

How to set up direct deposit

If you want to get paid via direct deposit, you’ll need to confirm that your employer provides the service and then give your bank account information to your employer’s payroll manager. You may even have the chance to do the process online through your employer’s payroll portal. In some cases, your employer may ask you to share a voided check to confirm your account and routing number. Here’s some of the personal information you’ll typically need to give (some of which can be found on the bottom of your checks).

  • Your name
  • Account number
  • Routing number
  • Type of account (checking or savings)
  • Bank name
  • Bank address

Depending on how fast your employer processes the information and the timing of your next paycheck, you might get a paper check for an additional pay period before your direct deposit is set up. Check with your payroll department to make sure you understand the timeline.

What are the advantages and disadvantages of direct deposit?

While there are some clear benefits to using direct deposit instead of paper checks, there are also some potential drawbacks you could run into over time.

Here are some of the advantages of direct deposit.

  • It’s usually free — Typically, neither financial institutions nor payors charge to directly deposit funds in your account.
  • You’ll save time — You don’t have to rush to the bank to deposit or cash your check after work, which can be especially difficult if you get off work shortly before your local branch closes.
  • Quick access — Your bank or credit union generally won’t put a hold on your direct deposit — as soon as it’s in your account, it’s available for use. In fact, the law requires that banks make directly deposited funds available no later than the next business day following the business day on which the deposit was made. This can help you access your income faster.
  • No paper check — Paper checks can be easy to misplace or lose, and if that happens, you’ll need to wait for your employer to put a stop payment on the check and issue a new one. With direct deposit, there’s no paper check involved at all.
  • Flexibility — Depending on your employer’s policies, you may be able to split up your paycheck between your checking and savings accounts. This can come in handy if you want to automate your savings.

In contrast, here are some of the potential disadvantages of direct deposit.

  • If you switch banks, you’ll need to switch direct deposits — Changing banks means you’ll need to go through the direct deposit setup process all over again. If your employer offers online access, you may be able to do it on your own. Otherwise, you’ll need to go through your payroll manager.
  • Bank accounts aren’t available for everyone — More than 8 million households were unbanked in 2017, according to the Federal Deposit Insurance Corporation, or FDIC. If you don’t have a bank account, you won’t be able to participate in your employer’s direct deposit program.
  • Direct deposit advances could cost you — If your financial institution offers a direct deposit advance, you can get money from your next direct deposit before it hits your account. But be aware that the next deposit will be reduced by the amount of your advance, and there could be high fees attached.

Is direct deposit safe?

Direct deposit is a safer alternative to paper checks because the money goes directly into your account, and there’s no danger of losing a check or having it stolen. But it’s probably worth asking your payroll manager what happens with your bank account information after you provide it to them. Signing up for direct deposit online may reduce the risk of someone getting ahold of your information on paper.


Next steps

If you have a bank account, direct deposit is the quickest and most convenient way to access your paycheck on payday.

If you’re just starting a new job or you’ve been receiving paper checks up until now, talk to your payroll manager to find out if direct deposit is an option and what the process is to set it up. Fill out the direct deposit form and do whatever else you need to initiate the process.

If you don’t have a checking account because of some past issues with bank accounts, consider second-chance bank accounts.  

Once you can get set up with direct deposit, you’ll enjoy better access to your hard-earned money.


About the author: Ben Luthi is a personal finance freelance writer and credit cards expert. He holds a bachelor’s degree in business management and finance from Brigham Young University. In addition to Cr… Read more.