What is direct deposit?

Direct deposit is a safe and convenient way of getting paid through an electronic funds transfer to your checking or savings account.

Zack Sigel 1600

Zack Sigel

Published January 29, 2019

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

Direct deposit isn’t just for your paycheck. You can use direct deposit whenever you sell an item online, cash out an investment, or receive unemployment or Social Security benefits.

You can also use direct deposit when making 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, or pay your insurance premiums. You can even pay your taxes with direct deposit.

Many 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.

Read on:

Getting paid through direct deposit

Most people think of direct deposit as the way they get paid at work. Both salaried workers and hourly workers can elect to receive their pay through direct deposit. You can get direct deposit if you’re full-time, part-time, or an independent contractor.

With direct deposit of your paycheck, your employer transfers money from their bank account to yours, as if writing a check for the amount and depositing it themselves. The money usually arrives instantaneously at a designated time on pay day, although it may remain in “pending” status until the transfer officially posts.

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Signing up for direct deposit

Signing up for direct deposit with your employer is simple. Typically, you’ll be asked to do it on your first day of work. You’ll have to give your account number and your bank’s routing number to your human resources representative as well as a voided check. In other cases, your company may use a third-party payment system for enrollment.

Your employee may test the validity of your banking information by making a $0 deposit into your account, which is called a prenote or prenotification. You probably won’t notice this happening.

If you use an online bank, the process is no different than if you bank at a brick-and-mortar location. However, the routing number might be a little difficult to find if you’re not used to writing checks with your online bank. If you can’t find it, check your online bank’s support portal for help.

Enrolling in direct deposit for military pay works similar to civilian employment. You’ll have to go through a web portal called MyPay at https://mypay.dfas.mil/ and provide your banking information.

Direct deposit of your Social Security benefits

Social Security benefits are paid out by the Social Security Administration for income to live on in retirement, or when you 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. In addition to your bank account information, you’ll need to provide your Social Security number (or claim number) as well as the 12-digit federal benefit check number and benefit amount from your most recent payment.

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

To receive direct deposit of your tax refund, you need to indicate it on your tax return. (Otherwise, the Internal Revenue Service will send you a check.) Once your return has been received and verified, your refund (if any) will be automatically deposited into your account.

Form 1040, which you use to file your tax return, contains a section near the end where you can input your account and routing numbers. Use Form 8888 (“Allocation of Refund”) to split your refund across multiple checking or savings accounts.

You can also pay your taxes using direct deposit. You can make a direct electronic funds transfer online at the IRS’s website with one of several tools offered. You can also pay with credit or debit card, check or money order, or by cash at certain physical locations.

Direct deposit of insurance benefits

If you file a claim for insurance benefits, you can elect to choose direct deposit of the payment. Generally, you have to indicate your choice 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 happens according to your insurer, although payments are usually made monthly.

For homeowners insurance, renters insurance, and auto insurance, direct deposit will made 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 spend and receive payment entirely within the service. Although the funds in your account are as good as cash, in order to actually receive those funds as cash you need to transfer them to your bank account. Direct deposit is one way to do this.

To sign up for direct deposit 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.

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How long does direct deposit take?

One of the biggest benefits of direct deposit is how much time it saves you. You don’t need to wait for a check to be mailed to you and for time to deposit it. Unlike direct deposit, the funds from a check typically aren’t available right away. If the other party doesn’t have enough funds, a check will bounce, making it even longer to receive your payment.

How long does direct deposit take to sign up for?

Signing up for direct deposit can be done in minutes. However, it may not take effect for a number of weeks or even as long as a month or two. That’s because the payor has to confirm your bank account information. Peer-to-peer electronic payment processors like Zelle can make this process instantaneous.

When signing up for direct deposit from your employer, you may have to wait one or two pay cycles before it becomes active. During that time, you may receive a paper check as payment instead.

Some employers hire their employees at the start of the pay cycle so that the direct deposit becomes active just in time for the new employee to receive his or her first payment via direct deposit.

How long does direct deposit take to post to a bank account?

When it comes from your employer, money from direct deposit is typically available to spend the moment it appears in your account.

In some cases, direct deposit may be initiated as an electronic check, which means that it has to be processed by an automated clearing house (ACH), an online network that securely processes large batches of smaller payments. Such payments take longer to post to your account and you may not be able to access them for up to five business days.

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 the form of:

  • A prepaid debit card, which could have fees to use
  • A check, which you’d have to take to the payor’s bank or a check-cashing service to redeem for cash
  • Cash, although this is a rare option because it presents a potential liability for the employer

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 Betterment’s managed accounts, offer a higher-than-average rate of return in exchange for a small fee.

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Policygenius’ editorial content is not written by a certified financial planner or advisor. It’s intended for informational purposes only and should not be considered legal, financial, or investment advice. Consult a professional to learn what financial products are right for you.

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