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What is direct deposit? Here’s how it works

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Direct deposit allows your employer to send your pay straight to your bank account, so you won’t need to deposit a paper check each payday. The prevalence of direct deposit has made paper paychecks largely a thing of the past, as 94 percent of respondents in a 2020 American Payroll Association survey indicated they were paid with direct deposit.

The main perk of direct deposit may be the convenience, but many banks provide additional benefits to customers who are paid this way that might help you save money and even get paid sooner.

What is direct deposit?


Direct deposit allows your employer to make deposits straight into your bank account instead of giving you a paper check to deposit yourself. This allows you to access your money more quickly and easily.


How direct deposit works

When you deposit a check into your account, your bank reaches out to the bank that issued the check to confirm the details of the transaction, including the amount of the check and whether the payer has enough funds in their account to cover it. This can take time, during which you might not yet have access to the money.

With direct deposit, your employer electronically sends your pay to your bank ahead of the upcoming payday, and your bank releases the funds to your account on the scheduled dates. As soon as your payday arrives, your pay shows up in your account and you can spend it immediately.

Many employers let you split your direct deposit between multiple accounts, which allows you to set up an automatic savings plan. For example, you could tell your employer to deposit $50 of each paycheck into your savings account and the rest into your checking account. This helps you to increase the balance of your savings account without having to transfer funds manually.

How to set up direct deposit

Setting up direct deposit varies slightly from employer to employer, but your human resources or payroll department should be able to help you get started.

To set up direct deposit, you’ll need to know:

  • Your bank account number and your bank routing number. The routing number tells your employer which bank to send your money to, while the account number helps ensure the money goes into the correct account at the bank.

Most banks list your account and routing numbers in their online banking portals. You can also view these numbers on the checks that came with your checking account.

picture of a check

Photo by Adobe Stock, Illustration by Bankrate

The routing number is the nine-digit number on the bottom left of your check, and to the right of is your account number. After that comes the check number, which usually indicates how many checks you’ve written from your checking account.

Some employers will request a voided check when you set up direct deposit in order to confirm your account information. That means bringing your checkbook with you is a good idea if you’re setting up direct deposit in person. To void a check, simply write “VOID” on it in large letters, or in smaller letters multiple times in the important fields, such as the payment amount box, the payment amount line, the payee line, the date line and the signature line. You can also write “VOID” on the back if you’d like.

 

Perks your bank provides for direct deposit

Banks may offer various perks to customers who set up direct deposit to their checking accounts.

One of the most common perks is a maintenance fee waiver. Some banks charge monthly fees on checking accounts, but they may waive the fee if you maintain a sufficient balance or receive a recurring direct deposit.

Some banks offer higher interest rates on checking or linked savings accounts if you meet certain requirements, which can include making a minimum number of debit card transactions or receiving direct deposits.

Some banks and challenger banks even give you early access to your paycheck, such as Capital One, Chime, Current, Fifth Third Bank and Varo Bank, among others. Since employers usually send employees’ paychecks to the bank a few days ahead of payday for processing, these banks can choose to release the money as soon as the transaction clears rather than making you wait until payday.

Bottom line

Setting up direct deposit is typically easy, and it can save you the time of collecting a check every payday and depositing it in the bank. In addition to its being quick and convenient, direct deposit may come with perks from your bank such as early deposit, split deposit and waived monthly maintenance fees.

Freelance writer TJ Porter wrote an earlier version of this story.

Written by
Karen Bennett
Consumer banking reporter
Karen Bennett is a consumer banking reporter at Bankrate. She uses her finance writing background to help readers learn more about savings and checking accounts, CDs, and other financial matters.
Edited by
Senior wealth editor