Direct Deposit 101

Chances are you’re reading this because you got a job and on your first day the HR manager asked if you wanted direct deposit for your paycheck. And whether you said “yes”, “no”, or “uh, let me get back to you,” it’s important to understand how direct deposit works as it’s going to likely be in your life for quite some time. 

What is Direct Deposit?

Direct deposit is a way for money to be transferred from one financial institution to another; in the case of payday direct deposit, that’s from your employer’s financial institution to yours. Instead of being handed a hard copy check, your pay will go automatically into your account. That means that even if you’re sick or not in the office on payday, you still have immediate access to your money. Typically, money can be deposited directly into any type of account at any financial institution. Many people split apart their direct deposit into more than one account. For example, they might have some go into savings and the rest of the direct deposit into their checking account. 

For these transfers to work, you need to share your account information with your employer. Depending on your workplace’s requirements, that could be account numbers, routing numbers or even a voided check. Having a checking account ready to accept these funds is necessary before you sign up for direct deposit. 

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Things to Keep in Mind About Direct Deposit

• Typically direct deposit paperwork is provided by your employer rather than your financial institution.
• Electronic deposits are completed faster than with manual, paper-based processes; on payday, your money is already there, so you won’t have to deposit it and then wait for the funds to clear. You can also skip a trip to the bank to deposit your paycheck because the money is already there. 
• This process works in reverse if you sign up to auto-pay any of your bills. It’s important to understand how your pay days and bill due dates align to ensure there’s money in your account. 
• It’s really easy to not pay attention to your paycheck once you have direct deposit, but don’t forget to check it each time you get paid to ensure your company has the right deduction information  (e.g., for your 401K and health insurance) so you can correct any errors early. 
• Ask your HR director how your company handles direct deposits when payday falls on a holiday. It might be deposited a day early, a day late or even on time if your credit union or bank is still open; it’s critical to know when your money is available. 
• Typically the direct deposit amount or percentage of your pay you select doesn’t change automatically with any pay increases. Make sure to reassess where you want your pay deposited to ensure your money is aligned with your financial goals. For instance, you might want to put any pay increase into your savings account instead of into checking; to do this you might need to resubmit direct deposit paperwork to your employer.