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What is Direct Deposit?

What is Direct Deposit?

What is direct deposit? You may have heard of direct debit, it is a form of ACH transfer where another account holder is able to request money from your account. Direct debits are common with utility companies, lending companies and so forth. Direct deposit is like the reverse of a direct debit. Instead of another account being able to request money from your account, the other account is able to pay money into your account. If a government department or employer sets up a direct deposit, then it is able to routinely pay money into your account with less hassle and fuss than if it were done manually.

If an employer were simply paying one person every month, then that person’s wages could probably be paid manually with a bank transfer using a free ACH transfer (provided by the bank). That person’s wages would be in his or her bank account the next day. However, if the employer had 1000 employees, then manually paying each person would take a very long time. If the employer has a direct deposit scheme set up, then paying employees is as simple as entering the right wage amounts prior to the date the wages are paid. If the employees are on a fixed salary, then the employer has even less to do when paying employees because the direct deposit system does it all automatically.

What Is Direct Deposit Doing To Help Companies Save Money?

Direct deposit helps save employers a lot of time, which saves them money. Direct deposit also ensures that staff members are paid because if the employees were paid manually, then there is always a chance that the employer will be held up and unable to run the manual payments through its bank.

If a company spends less money on paying its employees, then it has more money to pay taxes and pay off union bullies. If the employer has any money left over, it may be able to hire more people.

Should You Be Paid In Cash, By Check Or By Direct Deposit

writing a checkIf your boss is responsible with your wages and doesn’t make mistakes, then being paid by direct deposit is the most convenient method of payment. If your boss makes mistakes with your wages, then being paid by check allows you to go back and contest your wages and sort them out a little more quickly. The only downside to being paid by check is that it takes longer for your funds to enter your account, but that shouldn’t matter if you are managing your finances correctly.

You should never be paid by cash unless you are running a small business (like a window cleaner). The IRS will come down on you like a ton of bricks, or at least–they should. If you are a legal citizen of the USA, then the IRS will assume you are guilty until proved innocent, and you may have a hard time proving how much you were paid by cash. Sadly, if you are an illegal immigrant, then the IRS has no idea that you are working here and so you will get away without paying tax for as long as you can keep your illegal job.

What Is Direct Deposit Doing For Me?

It saves your boss money so that he or she doesn’t have to reduce your hours. It also saves the government money when they pay social security, so they are able to pay more social security and/or do not have to raise taxes.

Hacking a direct deposit network is far more difficult than picking your pocket or forging your paycheck. Plus, if your co-workers and so-called friends see how much you earn, they may be more inclined to take from you or ask you to lend them money.

For the record, if you ever wish to stop seeing somebody who you find annoying, or if you ever want to fall out with somebody, then lend that person money. That person will start avoiding you after a while, and once you start asking for the money back, then that person starts to view you as an enemy. “If anybody ever asks you to lend them money, you either give it to them as a gift or don’t give it to them at all.” (Quote from Judge Judy).

Should You Set Up Direct Deposit?

If you are an employer, then it is well worth setting up direct deposits to pay your staff. If you simply wish to pay money into an account on a frequent basis, then you may set up a recurring ACH transfer or you may do it manually.

You could set up a recurring ACH transfer that takes money from your account and pays it into your savings account on the same date your wages are paid every month.

If you are paying money into an account such as your child’s spending money account (maybe your child is in college), then you should probably conduct the transaction manually. It gives you a little more control, especially if you wish to alter the amounts or maybe give your child the gift of having to go it alone for a few months. Otherwise, you may set up an automated ACH transfer without having to get bogged down with the details of setting up direct deposits (in the same way that employers do).

If you are an employer, you will need each employee’s name and signature/proof of agreement. You will not the routing number and name of your employee’s bank account. Ideally, the employee should give you information for a checking account or savings account. You will also need your employee’s account number. With this information, you should be able to set up direct deposit for that employee.

Conclusion – It All Sounds Great, But Are There Any Downsides?

Some direct deposit plans will charge employers a fee for each transaction, but the cost is usually cheaper than any viable alternative. Another problem with direct deposit is when companies do not give employees a choice about direct deposit, and that is a problem for people who do not have a bank account. Those are really the only two downsides to direct deposit. Other than those two issues, direct deposit is a very good thing.

About The Author

Ash The Great

After a varied career in different industries from the hospitality industry to the financial consultancy industry, Ash now spends his days working as a professional writer.

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