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A popular way to receive your paycheck today is by direct deposit.
With direct deposit, you don’t have to take a physical check to a brick-and-mortar bank. You don’t even have to take a picture of the check to deposit it via your smartphone into your bank account. Instead, you can cut out these extra steps and have your money directly deposited into your bank account on payday with no monthly fees.
Direct deposit is basically an electronic payment from one bank to another. The best part is that most employers offer direct deposit as a payment option, and it’s simple to set up.
Read on to become more familiar with how direct deposit works.
How Does Direct Deposit Work?
Direct deposit is an electronic form of payment most commonly used to directly transfer wages into an employee’s checking or savings account by an employer. When you set up direct deposit with your employer, the funds for your pay are transferred from your employer’s bank account to your bank account. To transfer the funds, banks use the Automated Clearing House (ACH) network to coordinate these payments among financial institutions.
You’ll still have access to your paycheck stub so that you can review your timesheet, see the amount of taxes taken out, view your vacation time, and so on.
Direct deposit is not just limited to your paycheck. You can set up direct deposit for your tax refund, social security or disability income, and other types of payments that you may receive.
Setting up Your Direct Deposit: Step by Step
If direct deposit sounds like something you’d be interested in, here are some key steps you’ll need to follow in order to get everything set up. Remember, most employers and even many government agencies offer direct deposit, so this is a totally secure and convenient way to get paid.
1. Get a Direct Deposit Form From Your Employer
Start by asking your employer for a direct deposit form. This is a crucial step since you can’t continue without this. The direct deposit form is a document that authorizes your employer to send money to your bank account using an American Bankers Association (ABA) routing number and a bank account number.
2. Provide Your Personal Bank Account Information
To complete the form, you will need to add information like:
- Your bank account name and address
- Bank account number
- Routing number
- Type of account (checking or savings)
- Name(s) of the account holder
3. Decide How Much Money You Want to be Deposited Into Your Bank Account
Next, be sure to determine how much money you want to be deposited into your bank account.
While some people opt to have their entire paycheck deposited into their checking account, a cool feature with direct deposit is that you can split up the payment between your checking and savings accounts.
For example, you may want your employer to deposit 10% of your income to your savings account and the remaining 90% into your checking account.
Chime’s automatic savings feature, for example, makes it easy for you to do this so you don’t have to think about saving money. This way you can set aside a portion of your income automatically and budget the rest of your paycheck for other expenses.
Another option you may want to consider is splitting up your direct deposit amount between your checking account and your partner’s checking account. If you combine expenses with your spouse or live on one income, this may be a convenient way to disperse your paycheck.
4. Include a Direct Deposit Check or Deposit Slip With Your Form
A direct deposit check is simply a check that has been voided. This indicates that the check can’t be accepted for payment, but can be used to gather important bank account details and information.
And, even though you’re already providing this information on the direct deposit form, it’s still a great idea to verify everything with a voided check to ensure that your paycheck gets deposited into the correct account.
5. Submit Your Direct Deposit Form to Your Employer & Monitor Your Bank Account
Check to make sure that the information on your direct deposit form is accurate before you turn it in. Your employer or the HR department should let you know how long it will take to process your information and set up your direct deposit.
You may have to wait one or two pay periods, but keep your eye on your bank account around payday so you’ll know when the direct deposit kicks in.
How to Set Up Direct Deposit for Employees: What Business Owners Should Know
Direct deposit is the most common way to pay employees. According to a 2020 survey, 94% of U.S. workers receive their paychecks via direct deposit. So, if you are a business owner who isn’t using direct deposit to pay your employees, you may want to reconsider.
Setting up direct deposit for your employees is simple. Here are the steps you will need to take.
- Choose a direct deposit provider: This is the entity that will handle and house all of the information for both your business and your employees. Typically, you have two options for direct deposit providers. You can work with the bank that houses your business bank account or work with a payroll software that has direct deposit functionality.
- Set up your direct deposit service: Once you’ve decided on your direct deposit provider, follow the process for setting up your direct deposit. If you’re going with your bank, you can call them or use your online portal to set up. If you’re using a payroll software, it will set up direct deposit for you, after you put in your information.
- Obtain employee direct deposit forms and authorizations: Have your employees fill out their bank account information. Also, make sure to have your employees sign an authorization form that says they give you access to transfer funds electronically to their bank account.
Determine a payroll schedule: Next, determine a regular pay schedule that works best for your company and your employees. Communicate that schedule with your employees and payroll administrators.
What Are the Benefits of Direct Deposit?
Whether you are an employee or a business owner, setting up direct deposit has a ton of benefits. Here are some key advantages to consider:
- You’ll save time: Having direct deposit means your money goes directly into your account. This means you don’t have to spend time going to a bank or check cashing service after work to cash your check.
- You’ll save money: Sometimes, if you don’t cash a check at your traditional bank, you’ll get charged a fee. Currency exchanges often charge fees that increase with the amount of your check. And, some big banks may not cash your check if you don’t have an account there, or they may even charge you a fee. Direct deposit makes it easy to avoid these unnecessary charges and get your paycheck delivered directly to your account.
- You can get paid early¹: Another great benefit you should consider is the fact that you can actually get paid earlier with some account options. Chime’s Get Paid Early feature allows you to get your paycheck up to 2 days earlier¹ with direct deposit.
What is a direct deposit form and how do I get one?
A direct deposit authorization form is a document that permits a third party to transfer money to your bank account. Getting a direct deposit form through your bank is usually a simple and quick process. Most banks offer a link on their website for setting up direct deposit, with a customized direct deposit form. If setting up direct deposit through your employer, simply ask for a form.
Can you direct deposit into a savings account?
Yes. When filling out your direct deposit form make sure to indicate which type of account you would like the funds to be deposited to — checking or savings.
Keep in mind that some employers might be able to split your direct deposit into two different accounts.
Which routing number do I use for direct deposit?
The American Bankers Association (ABA) number is the standard routing number you use for direct deposit. It’s the 9-digit number printed on your bank statement or along the bottom left of your checks.
How long does direct deposit take to set up?
Setting up direct deposit can take anywhere between a few days and a few weeks. Once everything is set up, your payments will typically arrive in your bank account automatically, though it depends on your bank.
Setting up direct deposit is easy, free, and will likely be a more convenient way for you to get paid. Not only is it a fast and favorable way to pay your employees or get paid by your employer, but it can also make things easier with the IRS when it comes to tax refunds and stimulus payments.
Ultimately, direct deposit is a great way to get paid, and can help make your financial life simpler and easier to navigate.