What Are the Benefits of Using Direct Deposit?

Direct deposit doesn’t really have any drawbacks. Fortunately, nearly every bank account nowadays supports it. Direct deposit makes getting paid easier, and some bank accounts even offer early direct deposit to get your paycheck days before your actual payday.

What is direct deposit and how does it work?

Direct deposit is an electronic deposit that’s sent directly and automatically to your bank account, reducing the need for paper checks and manual deposits.

Direct deposits are made through automated clearing house (ACH) transfers, an electronic transfer system for financial institutions. Direct deposit is commonly used for recurring payments, such as payroll, government benefits, pensions or earnings from an investment fund.

Also important to note: Federal law mandates that all federal payment benefits, such as Social Security, must be made electronically, either through direct deposit into a bank account or a Direct Express Debit Mastercard, according to SSA.gov. ⁽¹⁾

How long does direct deposit take?

Direct deposits typically take a few days to process and clear, as the sender and receiver must verify the information and funds. The deposit process usually starts a few days before the scheduled delivery date to ensure it clears on time.

In some cases, direct deposit might clear before the set delivery time. If the deposit date falls on a weekend or holiday, the deposit may go through early, typically on the preceding business day.

9 benefits of direct deposit

It’s difficult to find any downsides to direct deposit.

1. It’s free.
   In nearly every case, setting up direct deposit is free of charge. Direct deposit is a form of an ACH transfer, which doesn’t cost anything to initiate or receive — unless you pay a fee for rush delivery.
2. You might get paid faster.
   Many banks offer early direct deposit, which means you could receive direct deposit a few days earlier than your actual payday. The same applies to direct depositing things like tax refunds. Since you don’t have to wait on snail mail to get the funds, opting for direct deposit can mean getting your cash days or weeks faster than a physical check.
3. It’s convenient.
   Direct deposit means your money is automatically deposited into your bank account, so you can wave goodbye to trips to the bank or a check-cashing service to get your money.
4. It’s more environmentally friendly.
   Since direct deposit is electronic, there are no paper checks involved, which reduces paper waste. To be even more environmentally friendly, you can also opt for e-statements instead of paper ones or choose to go paperless for other services, like your utility bills.
5. You can’t lose it.
   Paper checks are easy to misplace or ruin. Also, if you misplace it, you run the risk of someone else fraudulently cashing it themselves. But with direct deposit, the information and funds are sent directly to your account. If something goes wrong with your direct deposit, contacting your bank and the sender can often resolve the problem.
6. It makes budgeting easier.
   If you set up direct deposit with your regular payroll or government benefits, you almost always have the option to divvy up where the funds go. For example, you could allocate 90% of your deposit to your checking and the remaining 10% directly to your savings.
7. You might qualify for bank account bonuses.
   If you’re about to open a new checking account, setting up direct deposit could yield some extra cash. Many banks award account bonuses after you meet direct deposit requirements.
8. You can unlock extra banking perks.
   Some accounts, like the SoFi® Checking and Savings account, offer a higher savings APY when you set up direct deposit. Another example of direct deposit perks is the Chime Checking Account. With direct deposit of at least $200 per month, you may qualify for benefits like cash advances, the overdraft service SpotMe and Chime’s Credit Builder card.
9. It’s better than pay card options.
   Some employers offer a few ways to get paid, such as a paycard or direct deposit. If you go with a paycard, which is most often a prepaid debit card, you might incur fees just to keep the card active. Most prepaid cards like this have cash reload fees, inactivity fees, high ATM fees and so on. If you can direct deposit into a bank account, it’s often a more affordable route than a prepaid card.

Top accounts for direct deposit

Up to 4.20% APY

Go to site on SoFi's secure site

• 0.50% APY on checking balance
• Up to 4.20% APY on savings
• $0 account or overdraft fees
• Get up to a $300 bonus with direct deposits of $5,000 or more

Up to 2% cashback

Go to site on Upgrade's secure site

• Up to 2% cashback
• $0 monthly & overdraft fees
• Get paid up to 2 days early with qualifying direct deposit

Earn more with combined checking and savings

Go to site on Axos Bank's secure site

• $0 monthly fee
• Earn up to 4.86% APY on savings
• Earn up to 0.51% APY on checking
• Get paid up to 2 days early
• Access expanded FDIC Insurance for up to $250 million

Bottom line

Setting up direct deposit is usually free. Like other ACH transfers, there’s usually no charge to initiate or receive them. To set up direct deposit with your employer, you typically just need to fill out a direct deposit form with your bank account information, such as your account number, the bank’s routing number and your personal details.

Direct deposit is a simple, secure and easy way to get your payroll, government benefits or dividends from investment accounts. If you’re ready to set up direct deposit, but your checking account isn’t great or you don’t have one yet, compare the best checking accounts first.

To make sure you get accurate and helpful information, this guide has been edited by Holly Jennings as part of our fact-checking process.

Written by

Bethany Hickey

Editor, Banking

Bethany Hickey is the banking editor and personal finance expert at Finder, specializing in banking, lending, insurance, and crypto. Bethany’s expertise in personal finance has garnered recognition from esteemed media outlets, such as Nasdaq, MSN, Yahoo Finance, GOBankingRates, SuperMoney, AOL and Newsweek. Her articles offer practical financial strategies to Americans, empowering them to make decisions that meet their financial goals. Her past work includes articles on generational spending and saving habits, lending, budgeting and managing debt. Before joining Finder, she was a content manager where she wrote hundreds of articles and news pieces on auto financing and credit repair for CarsDirect, Auto Credit Express and The Car Connection, among others. Bethany holds a BA in English from the University of Michigan-Flint, and was poetry editor for the university’s Qua Literary and Fine Arts Magazine. See full bio

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