What is direct deposit?

A safe and convenient way to electronically deposit your paychecks right into your checking or savings account

Derek Silva

Derek Silva

Published November 14, 2019

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KEY TAKEAWAYS

  • Sign up through a direct deposit authorization form from either your bank or employer

  • Direct deposit is a secure process, and usually safer than a paper check

  • Funds transfer in one to three business days, but may take up to five days

  • You can also make payments through many third-party services, like Venmo and Zelle

Direct deposit is a way of getting paid through an electronic funds transfer right into your checking or savings account. Direct deposit functions like depositing a physical check without the additional step of receiving the check yourself. The transfer happens entirely online, and that makes direct deposit more convenient, less time-consuming, and more secure than using paper checks.

Direct deposit is a popular way to get your paycheck, but that isn’t the only use. You can use it to get a tax refund, Social Security benefits, and unemployment benefits.

You can also use direct deposit to make payments. As long as the other party accepts an electronic funds transfer, you can use direct deposit to pay rent or utility bills, make a mortgage payment, pay your insurance premiums, or pay a tax bill.

Some banks offer a bonus for starting a new account with direct deposit. The bonus may be a one-time cash deposit of around a few hundred dollars or a higher interest rate if the direct deposit is connected to a savings account.

In this article:

Who can use direct deposit

You can elect to receive direct deposit payments as long as your employer uses direct deposit — most of them do — and as long as you have a bank account where your employer can send the money. Direct deposit is an option whether you get paid hourly or through an annual salary. Full-time workers, part-time workers, and independent contractors can all use direct deposit.

(Learn more: Should I be using a savings or checking account?)

How to sign up for direct deposit

Signing up for direct deposit is simple. All you have to do is fill out a direct deposit authorization form. This usually happens on your first day of work, but you can also choose direct deposit or change your information later on. Some companies handle this process entirely online and some use a third-party to sign you up.

The direct deposit form will ask for

  • Your bank account number
  • The bank’s routing number
  • Whether your putting money in a checking or savings account
  • How much of your paycheck you want to deposit in the account

Forms vary slightly by institution and some ask for other information, like the name and address of your financial institution or other personal information.

You may also need to provide a voided check so your employer can verify your account information. They could make a $0 deposit into your account, which is called a prenote or prenotification, but you probably won’t even notice this happening.

Your bank’s routing number is the nine-digit number on the bottom left of your checks. If you don’t have checks, look on your bank’s website. Some banks list the routing number right on their site. Banks may also show you the routing number when you log into their online banking platform. Otherwise, visit the support portal for help.

Don't have a bank account yet? Policygenius' partner Fiona lets you compare high-yield savings accounts online, so you can start earning interest on your direct deposits.

How long it takes to set up direct deposit

Signing up for direct deposit can be done in minutes. However, it may not take effect for a few weeks or even more than one month because the payor has to confirm your bank account information. Peer-to-peer electronic payment processors like Zelle can make this process instantaneous.

With your employer, direct deposit may take one or two pay cycles to become active. During that time, you may receive a paper check as payment instead. Some employers hire employees at the start of the pay cycle so that the direct deposit authorization process is done just in time for the new employee to receive his or her first payment via direct deposit.

Splitting your direct deposit

If you want to split your paycheck between multiple accounts, add each account to the direct deposit form and specify how much of your pay should go into each. Most forms ask what percentage of your pay goes into each, instead of just a dollar value. You may need to fill out a new form for each account.

Can I use a credit union account?

Yes. You can direct deposit into a savings or checking account with any bank or credit union. The signup process is also the same for online banks.

Direct deposit of military pay

Enrolling in direct deposit for military pay works similar to civilian employment. You just have to go through a web portal called MyPay and provide your banking information.

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How long does direct deposit take?

One of the biggest benefits of direct deposit is that it happens very quickly, usually one to three days but sometimes up to five business days. This varies depending on who is actually sending the funds and may even get faster in the future.

(Learn more about transferring money from one bank to another.)

When it comes from your employer, you can usually spend the money as soon as it appears in your account. In some cases, the payment may reach your bank but then the bank has to process it before it’s actually available to spend. This could take up to five business days.

Direct deposit with other kinds of pay

Direct deposit isn’t just for getting a paycheck from your employer. In fact, you can also use it to make payments to others.

Direct deposit of Social Security benefits

Social Security benefits are paid out by the Social Security Administration for retirement income or for individuals who suffer a disability and are eligible for Social Security disability insurance. You’re required to receive your Social Security benefits through either direct deposit or as a prepaid debit card.

You can sign up for direct deposit of your Social Security benefits on GoDirect.gov. You’ll need to provide your bank account information, your Social Security number (or claim number), the 12-digit federal benefit check number, and the benefit amount from your most recent payment.

Direct deposit for veterans

For former members of the armed forces, your disability compensation and Veterans Affairs health care benefits are also paid through direct deposit. You can find help on signing up for direct deposit at on eBenefits, at ebenefits.va.gov.

Direct deposit of your tax refund

You can receive your tax refund as a direct deposit by choosing that option on your tax return. (Otherwise, the Internal Revenue Service will send you a check.) Once the IRS verifies your return, any refund will be automatically deposited into your account.

Form 1040 contains a section near the end where you can input your account and routing numbers (lines 19-21 of the form). You can use Form 8888, Allocation of Refund, to split your refund across multiple deposits. Tax refunds may take a few weeks to reach your account.

You can also pay your taxes using direct deposit. Just visit the IRS website to make a direct electronic funds transfer. (You can also pay your taxes with a credit card, debit card, check, money order, or by cash at certain physical locations.)

Direct deposit of insurance benefits

When you file a claim for insurance benefits, like the death benefit of a life insurance policy, you can elect direct deposit of the payment.

Generally, you have to choose this option when you file a claim, using the claim form provided by your insurance carrier. The claim form contains all the details about your claim as well as a section to fill out your bank account information.

For life insurance, direct deposit of the death benefit will be made to your beneficiaries. Direct deposit of disability insurance benefits usually happens monthly but this may vary by insurer.

Payments for losses covered under homeowners insurance, renters insurance, and auto insurance, will be made by direct deposit after the covered damage is assessed and any relevant deductible is applied.

Direct deposit from a third-party payment service

Payment services like PayPal, Venmo, and Cash App allow you to send and receive payments entirely within the service. Although the funds in your account are as good as cash, in order to actually withdraw those funds as cash, you need to transfer them to your bank account. Direct deposits are one way to do this.

To set up direct deposits on a third-party payment platform, you need to submit your bank account and routing number. Sometimes, the service will attempt a tiny charge to confirm that the bank account information is accurate.

Alternatives to direct deposit

Direct deposit is one of the easiest and most secure ways to get paid. However, you can’t use direct deposit if you don’t have a bank account. Instead, you may have to receive payment in one of these ways:

  • A check
  • A prepaid debit card, which could have fees to use
  • Cash, although this is a rare option from employers

Consider opening a free checking or savings account at a bank or credit union so you can start getting paid through direct deposit. Other types of savings accounts, like a money market account, may offer a higher-than-average rate of return in exchange for a higher minimum balance.

How direct deposits work

Direct deposit allows someone to electronically send money from their bank account right into someone else’s. This happens through a type of electronic funds transfer called an ACH transfer.

An ACH transfer is simply a digital way for banks and individuals to exchange money. ACH transfers eliminate the need to send physical checks or cash. They can also happen almost instantaneously because they’re digital and you don’t need to worry about things like proving that a check is legitimate.

Nowadays, most bank-to-bank transfers happen through the ACH. If you have recurring bill payments that withdraw money directly from your account, that’s an ACH transfer. Mobile payment services like PayPal, Venmo, and Apple Pay also work through ACH transfers.

Read more about how ACH transfers work.

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