Are you tired of waiting for a check to arrive in the mail before you can cash it out? Even if you receive a check in the office, it takes extra time to visit your local branch. Some financial institutions let you deposit checks by taking a picture of the front and back, but that’s still time you could be doing something else.
Setting up direct deposits can help you save time. More employers have embraced direct deposits to streamline paydays and give employees more reasons to stick around. Understanding how direct deposits work makes it easier to set them up and get your employer on board if they aren’t already.
What is a Direct Deposit and How Does It Work?
A direct deposit is an automatic money transfer from your employer’s bank account to your bank account. The Automated Clearing House (ACH) facilitates these electronic transfers and allows both parties to save time. Employees don’t have to ask about the next check, wait for it to arrive in the mail, and then cash it out. Employers also have a simpler way to pay their workers. The funds will automatically show up in your checking or savings account, depending on which one you set up for direct deposits.
Reasons to Set up Direct Deposits
Direct deposits present several advantages over traditional payment methods. These are some of the benefits to keep in mind.
Get Payday Faster
Employees don’t have to wait for a check to arrive in the mail. Instead, they get paid on payday and can use the money right away. This is more convenient for employees and employers. Quicker access to paydays can make employees more likely to work for the employer instead of searching for other solutions. Of course, faster paydays aren’t the only factor, but an employee may not want to stick around if they receive monthly payments that don’t happen on time.
Quicker paydays are vital for some employees who live paycheck to paycheck. An earlier payday can allow workers to cover emergency expenses right away instead of having to take out a payday loan or get another type of financing.
One of the benefits of setting up a direct deposit with your employer is the ability to get paid faster if you choose the right banking solution. For example, Current offers an early direct deposit feature that helps you get your paycheck up to 2 days sooner, avoiding the wait for the payout to process.
Receiving a paycheck from an employer sooner could allow for timely debt payments and the ability to address unexpected expenses. Since not every bank offers this feature, visit Current’s website to check all the features, like overdraft protection or high-yield savings accounts, or if ready to get paid earlier, open a bank account with them.
Receive Your Paycheck from Anywhere
A paper check gets mailed to your address, but you may not be home when it arrives. A worker has to go home, retrieve the paycheck, and then deposit it before using funds. This can get complicated if you just began a 1-2 week vacation and won’t be home for a while. Direct deposits let you receive funds regardless of where you are at the time. You don’t have to be home or at the office to cash in on your payday.
Accessing your paycheck from anywhere also lets you spend the money right away. You don’t have to wait until you cash your check to use your payday to buy goods and services. You can make credit card payments and other transactions from anywhere. Getting your paycheck anywhere in the world gives you more resources to use on purchases.
More Secure Than Paper Checks
A paper check isn’t perfect. If the employer forgets to write the recipient’s name on the check, someone can steal the check and write their name instead. If the worker isn’t home for a few days and the check is unprotected, someone can steal it. The check may contain personal information, such as the employer’s address. Paper checks do not have the same level of security as direct deposits.
It’s also possible for the check to get accidentally ripped during transit. A worker can also rip the check by mistake if they open the envelope too quickly. These events do not happen too often, but they demonstrate lower security and a greater risk of something going wrong.
Don’t Have to Worry About Cashing in Checks
The days of visiting the bank are over. You don’t have to cash in a check at your local branch or take pictures of the check’s front and back. Direct deposits take place automatically. Consumers who visit their local bank less often may feel compelled to consider online banks that have higher interest rates on their savings accounts. Some banks and credit unions give 3%-5% APY, and the less time you spend at a physical bank, the more comfortable you may feel with a virtual FDIC-insured bank offering a higher yield.
Better Way to Manage Money
Direct deposits ensure funds leave an employer’s account right away. Business owners don’t have to keep track of who received their payment and who didn’t. If an employer pays via checks, that employer has to pay attention to their balance. Some workers may not cash out their checks until a few weeks later. This can result in an overdraw if the employer does not have enough funds in their account for a surprise check redemption. Employers can create separate bank accounts designated for payments to mitigate this risk, but why take this extra step when direct deposits are all you need?
How to Set Up Direct Deposit
Setting up direct deposit doesn’t take up much time. Once you have it ready to go, your payments will automatically go to your bank account. It’s a more convenient solution and a great time saver, but what does the setup look like? Here’s how to get started with direct deposit.
Get a Direct Deposit Form from Your Employer
You have to inform your employer about your desire to receive direct deposit payments moving forward. Some employers have payroll software that handles this automatically, but you will have to fill out a form to get started. If your employer does not have a direct deposit form, you can get a document from your bank.
Fill in Your Bank Account Information
The form will ask you to provide several details to enable direct deposits. For example, you will have to provide your bank account number, routing number, and a few other details.
Check and Confirm the Deposit Amount
You can choose to put all of the proceeds in one account or split your direct deposit across multiple bank accounts. Regardless of which path you choose, it’s important to check and confirm the deposit amount. You don’t want to ask for the wrong amount of money or see that you didn’t receive enough funds in your bank account.
If Necessary, Attach a Voided Check
Employers may use a check to verify your bank account and routing number. If you have to provide a paper check for this step, write “VOID” across the check’s front and back. You don’t want someone filling in details and sending an unauthorized payment if the wrong person gets access to the check. Some employers will not ask you to provide a check and will accept the bank account and routing numbers you provide on the form.
Submit The Form
It’s worth reviewing the form to make sure you entered everything correctly. This step won’t take too long, but once you are ready, it’s time to submit the form.
Monitor Your Account
Your funds may not arrive right away, but they should eventually show up in your account. If you experience a lengthy delay, it may be a good idea to contact your employer and ask about the direct deposit. Some employers may take a while to put your direct deposit into the system. However, once your direct deposit is set up, future paydays become much easier.
