- What is Direct Deposit?
- Benefits of Direct Deposit for Businesses
- Benefits of Direct Deposit for Employees
- Top 6 Benefits of Direct Deposit
- Automate Your Paychecks To Simplify Your Finances
Direct deposit is by far the most common way to get paid in America. In fact, 93% of U.S. employees are paid by direct deposit, according to the American Payroll Association’s “Getting Paid in America” Survey.
If you’re among the 7% of workers still getting paid via paper checks, here are 6 reasons why may want to switch to direct deposit.
What is Direct Deposit?
Direct deposit is an electronic form of payment in which an employer directly transfers wages into an employee’s checking or savings account. Setting up direct deposit is usually a fast and simple process and employers and employees often choose this payment method because of its convenience, security, and efficiency.
Benefits of Direct Deposit for Businesses
There are quite a few benefits of using direct deposit to pay your employees, such as saving your business time and money. Check out a summary of benefits direct deposit can bring your business:
- Cost savings on supplies (e.g., check stock, ink)
- Reduced risk of check fraud and lost or stolen checks
- Greater control over payroll and payroll expenses
- Timely payment of salary checks
- Can pay employees from any location
- Reduced bookkeeping because of immediate payments into employee accounts
- Online transaction reports available immediately
- Can avoid payroll fraud schemes
Benefits of Direct Deposit for Employees
Direct deposit is a time-saver for employees and a secure way for them to get their paychecks. Check out a few advantages of direct deposit for employees:
- Have access to their paycheck right away on payday
- Don’t need to be in the office to get paid
- Reduced time required for checks to clear
- Reduced chance of losing checks or having them stolen
- Save time by not needing to visit a bank or ATM to deposit checks
- Payments can be divided automatically among designated employee accounts
- A more efficient way to manage money
Top 6 Benefits of Direct Deposit
1. You Get Paid Faster With Direct Deposit
If you get paid by check, your money isn’t always available to you immediately. Instead, you may have to wait a couple of days after depositing the check to actually have access to that money. Why? Your bank needs to make sure the funds are available at your employer’s bank before clearing your check. The process is even slower if you get your checks by mail. And just think: you can run into yet more delays if you deposit your check right before a holiday weekend.
With direct deposit, however, funds clear instantly, giving you immediate access to your hard-earned cash. Better yet, if your normal payday happens to be over a holiday weekend, you’ll typically get your paycheck on the last working day before the weekend.
Lastly, depending on your bank and how your employer processes payroll, you may even get your paycheck before everyone else. For example, Chime offers an Early Direct Deposit feature, which allows you to get paid up to two days early.
2. Paper Checks Are Inconvenient
With direct deposit, you don’t have to wait to get your check in the mail or stand in line at the bank to deposit it. When you get direct deposit, your cash is in your bank account immediately.
Paper checks can indeed be inconvenient. Not only this but you can also run into problems trying to cash the check. For example, if your bank is not the same as your company’s bank, verification can take a couple of days – meaning you’ll need to wait to access your own money.
3. You Can’t Lose Direct Deposit
Because direct deposit happens electronically, the chances of losing your paycheck are slim, especially if you’ve provided the correct bank account information to your employer.
In contrast, it’s possible to lose paper checks or have them stolen. In fact, check fraud is still the most prevalent form of payments fraud, according to a recent report by the Association for Financial Professionalsin 2018, check fraud accounted for 47% (up 12% in just two years) of industry losses, $1.3 billion, according to the American Bankers Association’s 2019 Deposit Account Fraud Survey. The jump was so drastic that it actually overtook debit card fraud (44% at $1.2 billion) to claim the number one spot for fraud against bank deposit accounts.
If you do lose your paycheck, you’ll have to go through your employer to get a new one. Unfortunately, this process can take days, and things can get complicated if someone found the check and cashed it.
4. Direct Deposit Is Free
Signing up for direct deposit through your workplace – assuming your employer offers this option – is free to you. But, of course, you need a bank account for the funds to be deposited into.
If you do happen to belong to the small percent of the U.S. population that doesn’t have a bank account, you still have options. Just keep in mind that these options will cost your money. For example, Walmart [NOTE: added external link] offers a check-cashing service, but the retailer charges up to $6 per check, depending on the check amount.a fee of $4 for checks up to $1,000, and a fee of $8 for checks greater than $1,000. Other check cashing services can charge up to 10% of the check amount — that’s $100 for a $1,000 check.
5. You Can Avoid Monthly Maintenance Fees
Many big banks still charge monthly fees on checking accounts. And some banks require that you receive a certain number of direct deposits a month to waive fees. For example, in order to waive certain fees, you may need to receive direct deposits totaling $500 or have at least one direct deposit per month in any amount.
If you do bank at a financial institution with fees like this, being paid via direct deposit often allows you to meet these monthly requirements. This means you won’t get dinged with these specific fees and you’ll save money. Of course, you can also just switch to a bank account, like Chime, that will never charge you feeswon’t charge you hidden fees.
6. You Can Automatically Divert Payments To Savings
Some employers allow you to set up direct deposit with multiple accounts. By doing this, you can automatically deposit cash into your savings account without lifting a finger.
If your employer doesn’t allow multiple-account direct deposits, you can set up automatic savings instead. For example, if you’re a Chime member, you can take advantage of Chime’s Automatic Savings feature. Through this program, you can request that Chime automatically divert a percentage of every paycheck into your Chime Savings Account. Once you opt in, Chime does the work for you, and you don’t even need to get your employer involved.