There are several options to follow when sending or receiving payments. You can use cash, checks, or electronic payments. But most organizations prefer that you use direct deposits – It’s a safe and inexpensive payment option.
Why Use Direct Deposits?
– Faster Pay:
Direct deposits give you immediate access to your money. if you get paid by check you will understand better – your money isn't always available to you immediately. Instead, you may have to wait a couple of days after depositing the check to have access to that money. As your bank needs to be sure that the funds are available at your employer’s bank before clearing your check.
The process is even slower if you get your checks by mail. Imagine how much delay you'll have if you deposit your check right before a holiday weekend.
The good news is that direct deposits save you at that time. with direct deposits funds are cleared instantly, without any delay. Giving you immediate access to your hard-earned cash.
If you get paid by check, your money isn’t always available to you immediately. Why? And just think: you can run into yet more delays. If your normal payday happens to be over a holiday weekend, you’ll typically get your paycheck on the last working day before the weekend.
Lastly, depending on your bank and how your employer processes payroll, you may even get your paycheck before everyone else. For example, Chime Bank offers an Early Direct Deposit feature, which allows you to get paid up to two days early.
– No mail or paper:
With direct deposits, you need no mail or paper. You don/t have to print checks or pay to mail them. Neither do you have to wait to get your check in the mail or stand in line at the bank to deposit it?
Paper checks can indeed be inconvenient. if not careful enough, you may run into problems trying to cash the check. Especially when your bank is not the same as your company's bank, verification can take a couple of days – meaning you’ll need to wait to access your own money.
With direct deposit, your cash is in your bank account immediately. Also, payments don’t get lost as long as the process is correctly set
According to a recent report by the Association for Financial Professionals check fraud is still the most prevalent form of fraud. Imagine the stress you'll go through when you lose your paycheck.
The good news is that direct deposits save you all that stress. Nobody can steal a check, alter it, or attempt to cash it. The funds seamlessly move from one checking account to another.
Because direct deposit happens electronically, the chances of losing your paycheck are slim, especially if you’ve provided the correct bank account information to your employer.
Sending funds by ACH is often less expensive than other options—including paying accountants. And receiving funds is at a zero cost. Also, you don’t go through checks, envelopes, or postage.
When receiving funds by direct deposit, the funds are added to your account without any action required on your part. Whether you’re out of town or too busy to make it to the bank, your account will be credited.
Some employers allow you to set up a direct deposit with multiple accounts. By doing this, you can automatically deposit cash into your savings account without lifting a finger.
In a case where your employer doesn’t allow multiple-account direct deposits, you can set up automatic savings instead.
For example, if you’re a Chime bank member, you can take advantage of Chime’s Automatic Savings program. Through this program, you can request that Chime automatically divert a percentage of every paycheck into your Chime Savings Account. Once you are opt-in, Chime does the work for you, and you don’t even need to get your employer involved.
– Direct Deposit Is Free
Signing up for direct deposit through your workplace – assuming your employer offers this option – is free to you. But, of course, you need a bank account for the funds to be deposited into.
– Electronic Records:
Keeping your banking transaction records is very important. And direct deposits does just that – Everybody has a record of the payment, and it’s easy to see what happened in your checking account’s transaction history.
Many big banks still charge monthly fees on checking accounts. And some banks require that you receive a certain number of direct deposits a month to waive fees. For example, to waive certain fees, you may need to receive direct deposits totaling $500 or have at least one direct deposit per month in any amount.
If you do bank at a financial institution with fees like this, being paid via direct deposit often allows you to meet these monthly requirements. This means you won’t get dinged with these specific fees and you’ll save money. Of course, you can also just switch to a bank account, like Chime, that will never charge you fees.
– Automatic transactions:
When you receive funds via a direct deposit, your account balance will automatically increase when the payment arrives. You don’t need to accept the payment or deposit funds to your account, which would be required if you received cash or a check. Likewise, when you pay with direct deposit, your checking account balance will automatically decrease when the payment leaves your bank.
– Frequently used:
Direct deposit has become increasingly popular because it does away with unnecessary paperwork, and billions of ACH payments take place every year. For example, some branches of government, such as the Social Security Administration, no longer print checks. Instead, they require that you receive funds electronically (either through direct deposit or via a reloadable debit card). Even small employers enjoy the ease of making payments to not just employees but vendors.
A straight forward two steps process will get you started:
Step 1: Receive Payments
Like I said Signing up for direct deposit through your workplace – assuming your employer offers this option – is free to you. But, of course, you need a bank account for the funds to be deposited into.
The first step is to set up an account to receive payment. You need to provide bank account information to the organization that is paying you.
These list of information to provide:
- Bank account number
- Routing number
- Type of account (typically a checking account)
- Bank name and address—you can use any branch of the bank or credit union you use
- Name(s) of account holders listed on the account
You can find most of that information on any personal check. The routing number usually appears on the front of the check at the bottom left side. The account number will be just to its right. Alternatively, you can call your bank and ask for direct deposit information. Details are often available online as well, but it's best to log in to your account for accurate information.
It's worth noting that your bank routing and account numbers are sensitive information, so don’t provide those numbers to anybody unless you truly trust them.
Setting up direct deposit can take anywhere between a few days and a few weeks. Ask your employer what to expect so that you don't look for your payments in the wrong place.
Once everything is set up, your payments will arrive in your bank account automatically. Be sure to check your available balance in your checking account before you try to spend any of that money. Government payments like tax refunds and Social Security benefits are typically available immediately. Other payments might be held for a few days, but payments from employers are generally available immediately.
Step 2: Send Payments
To send payments electronically, you need a relationship with a financial institution that provides ACH payments. Business bank accounts, popular bookkeeping services, and payroll providers may offer that service—so ask the vendors you’re already working with. Next, gather information about your payee, and include disclosures relevant to local and federal laws. If you're unsure about the regulations check with your accountant.
Now that you know how easy it is to receive payments electronically, you might want to start sending payments the same way. As a consumer, you can use the same technology to avoid using checks, paying for postage, and getting bills into the mail on time.
It's also a good idea to set up alerts so you can receive an email or text message whenever there's a deposit or withdrawal in any of your accounts.
It’s always a good idea to check your bank accounts periodically to find errors and signs of identity theft before starting the process. Also, as you start sending and receiving electronic payments, it’s wise to review your bank accounts more frequently—at least until you figure out how everything works. If you’re switching from a paper-based check register, you'll have to adjust to the change of seeing everything online, but there's no reason you can't continue to balance your accounts as you’ve done in the paid
In conclusion, Automate Your Paychecks to Simplify Your Finances [internal link]. if you don’t currently have a direct deposit, sign up for it if possible. At the end of the day, direct deposit is more convenient than dealing with paper checks and it gives you greater control over your hard-earned cash.