Direct Deposit: What is it, and how to use it?

Direct deposit is an electronic payment option wherein money is directly transferred or deposited into a checking or savings bank account. It is a low-cost and efficient method of transferring funds.

This electronic payment helps in receiving payments faster than other modes of payment. This saves you the hassle of going to the bank to issue a check or handle money by hand. In fact, 82% of workers in the United States of America are actually paid using Direct Deposit, and they are satisfied!

To find out how does direct deposit work, read further.

Advantages of Direct Deposit

Many lending platforms enumerated the advantages of direct deposits as follows:

  • Less hassle with this mode of payment. Wherever you are, whatever you are doing, your account will be credited. The number of trips you make to the bank is lesser because money is automatically transferred to your account or automatically deducted from your account.
  • It’s easier to keep track of payments. You know how tiresome it is to keep paper receipts and write down fees. Everyone has a record of the movements in your account. You don’t have to keep remembering every transaction you had with your account.
  • There is less paperwork. You don’t have to fill out physical paper forms. Plus, you’re saving the environment!
  • It’s easier and faster to receive payments. It’s efficient since electronic payments arrive relatively faster than paper payments. This payment method does not need your signature, there’s no need to wait for the check to be cleared, and you don’t have to line up to make a deposit or receive an amount of money.
  • Safe to use. Direct deposits cannot be misplaced, tampered, or ripped off, unlike checks. As an owner, you do not have to worry about bringing some cash with you and risk losing such cash. 

Disadvantages of Direct Deposit     

There aren’t many setbacks with using Direct Deposit. However, despite being efficient, direct deposit is not perfect. 

First, you need to have a bank account. If you don’t have one, then maybe you should consider having one to enjoy the benefits of Direct Deposit. Second, some banks charge a fee for direct deposit, but it is considerably lesser than paying for mailing fees and other expenses to deliver a check. Third, you always have to keep track of the money you have when making a direct deposit because you might risk an overdraw.

If you have overdrawn, then the money that you deposit will be used to pay for the overdraw. Be very careful because you don’t want to run the risk of spending the money even before it came.

How to set up Direct Deposit?

Setting up a direct deposit with the employer is sometimes done upon employment, but it can be done at any other time.

You can approach your company’s Human Resource Office. You can ask for a Direct Deposit form from them or from your bank. Whether you set up with an employer, business owner, or company, the process of setting up is pretty much the same. In order to receive or pay using direct deposit electronically, you must have an active savings or checking bank account.  The usual requirements are as follows:

  • Your bank account number. This is the financial home that will help you track where the money came from or where it will go. Your bank account number can be found at the lower-left corner, at the right side of the routing number.
  • Your bank routing number. This is an electronic address which, like your bank account number, will help you track where the money came from or where the money will go. This usually appears at the bottom left side, which is also referred to as Transit. This can be found at the lower-left corner of your check.
  • Your bank’s address. This is generally additional verification for you to set up a direct deposit account.
  • Voided personal check. The reason is that your employer will verify the information you submitted with the form. 

Setting up a direct deposit usually takes a few days up to weeks. Just ask your employer or company what you should expect. Once your account is set up, you will start receiving payments to your account.

After setting up, your account takes one to two pay cycles before the money is  transferred in your bank account. Until then, you’ll be receiving cash or checks in the meantime. Once ready, your account will automatically change depending on the activities you do with your account.

How to Send Payments 

Payments are made via ACH or Automated Clearinghouse, which is used by banks and unions. ACH is the safest way to make money transfers. To electronically send payments, the person you’re sending payment to must have a direct deposit account as well. Next, gather the vital information of the payee to effect payment using direct deposit.

How long it takes to process Direct Deposit?

A direct deposit happens very quickly. It usually happens one to three days,  but sometimes takes up to five days.


Nowadays, we’re chained with fast-moving lifestyles which prompt us to get things done instantly, and transferring money is no exception. So, if you’re offered to set up a direct deposit, do not hesitate to accept it. It’s efficient, secure, saves time, and saves you money in fee charges!

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