What Is A Direct Deposit?
A direct deposit involves the automatic transfer of funds into a bank account electronically.
It eliminates the need for the use of physical or paper checks.
Direct deposits make use of electronic networks to transfer the funds between banks, and the electronic network commonly used is called the ‘Automated Clearing House’ (ACH). This led to the recipients’ accounts being credited immediately, without needing to wait for clearance or approval for the release of funds.
Direct deposits are commonly used for paychecks, tax refunds, and investment redemptions. They are beneficial due to the quick and easy access to funds it guarantees.
When a check is issued in favor of an individual and taken to a financial institution, they, in return, have to confirm with the bank that stated its authenticity, including details on the amount to be transferred, the bank balance of the issuer, and so on.
These confirmations take time, and access to the deposited amount cannot be granted while these checks are being done.
However, in the case of a direct deposit, a depositor can be given the receiver’s bank details or a void check ahead of the agreed payment date. The depositor then mandates the bank to release the funds on the exact payday such that the paycheck comes in the mail on the said date.
There is also a provision for the deposit to be split between multiple accounts owned by the beneficiary. Each one will be credited with the intended amounts to save the beneficiary the stress of manually transferring the funds to the other special-purpose accounts.
To encourage customers to take the direct-deposit option, some banks place a waiver on account maintenance fees for users and sometimes allow a higher interest rate to be used on the user’s bank balance.
As good as it seems; however, direct deposits come with an increased risk of online security breaches, including invasion of customers’ devices by bugs and viruses that copy their details and block them out of their accounts. They are also locking user accounts due to them entering incorrect passwords more times than can be tolerated.
Direct Deposit Example
If a worker expects his pay as a check on the 30th of every payment, it can be paid directly to his account.« Back to Glossary Index