What Are Direct Deposits?
Direct deposit occurs when money is put straight into your checking or savings account. People will do this instead of issuing a check for money that they owe others. Many businesses are set up to do direct deposits. The most common direct deposit is for payroll checks, which can help prevent checks from becoming lost in the mail.
Advantages of Direct Deposits
Direct deposit can make handling your finances much easier. It limits the number of trips that you need to make to the bank since your money is put into your account automatically. It will also prevent holds being placed on your account for large deposits since the funds are immediately available when they are transferred. Direct deposit can save you a trip to the bank since your funds will automatically go into your account. You can also set up an automatic transfer if you try to save money from each paycheck.
You will not need to worry about the check being put on hold since the funds are automatically available to you.
Disadvantages of Using Direct Deposit
The main disadvantage of direct deposit is that if you have overdrawn your account, the money you deposited will be used to cover the overdraft. However, if you do not overdraw your account there are no real disadvantages to using direct deposit. In fact, it can save you time and money to use direct deposit. The money should be there on the day that you are paid. It is important to check that the deposit went through before you spend the money. Sometimes mistakes are made, and you do not want to deal with overdraft fees because you spent the money before it came.
What Can I Have Deposited Directly to My Account?
The most common use of direct deposit is with paychecks. However, it can happen with nearly any payment that you receive. If you have your tax refund direct deposited to your account, you can speed up the amount of time it takes to receive your refund. Many businesses are set up to do direct deposits through their banks. You may have one-time payments directly deposited to your account.
How to Sign up for Direct Deposit
To sign up for direct deposit, you need to talk to someone in your human resources department. Usually, this is offered when you first begin working, but you can also sign up at any time. There may be a waiting period before your first direct deposit starts because it takes time to process the paperwork. If you want to sign up for direct deposit for other funds, you will need to be able to provide the bank name, the routing number and the checking account number for the check.
How Direct Deposits Benefit the Bank
One of the reasons banks like direct deposits is that it means the overdraft will be covered when you are paid. If you are constantly overdrawing your account, it can be difficult to break the cycle. You may need to cancel the direct deposit and receive the paycheck in order to manage your money so you can break the overdraft cycle. Banks may offer free checking if you sign up with a direct deposit. They may also waive minimum balance requirements. Be sure to check with your bank to see if you can qualify for these benefits.
Signing up for Direct Deposit: Considerations
When you close your checking account, you will need to change your account number with your job. Pay attention to how long it takes to process the paperwork, and allow that amount of time before you close the account. It is usually a good idea to leave that account open until the direct deposit has gone into your new account. It can make things more complicated when you close your account, but it is a one time inconvenience and is definitely worth dealing with for the added convenience of direct deposit.
Direct Deposit With a Credit Union Account
Credit unions are similar to banks, and they do allow you to have money direct deposited into your account. Some businesses will have an employee credit union and may require that you have the money direct deposited into that account. If you want to keep your accounts at another bank, you can set up a transfer or simply withdraw the money on the day it is deposited.