Direct Deposit is the process of electronically transferring funds into a recipient's bank account without physically depositing a check to the bank. Direct deposit works on an electronic network that allows the transfer of funds between banks; this electronic network is known as Automated Clearing House (ACH). Since the transactions take place electronically, recipients’ accounts get credited automatically. Payroll and tax refunds are usually conducted through direct deposit. Keeping in mind the huge demand of fast and safe direct deposit service, many payment apps have started to offer this feature. Cash App direct deposit is the best example of fast and safe direct deposit available in the US.
Direct deposit is often made by businesses/organizations for the conduction of payrolls. People also use this facility for personal payments like bills and taxes in many parts of the world.
How does it work?
The process of direct deposit starts by providing the payment information like bank name and account number to the bank’s direct deposit processing service. The bank then deducts the amount from the sender’s account before the direct deposit to maintain a smooth cash flow unlike issuing a check which requires days for the payments to get clear.
Another way of direct deposit is by online or net banking.
How to set up direct deposit
No matter the reason, the process of setting up direct deposit is easy and remains the same for everyone. Here’s how you can set up your direct deposit payments:
Find out the routing number
It is good if you are considering setting up a direct deposit using a bank or app. To do so, you need to find and share the routing number with your employer. Every app and bank has its own routing number. Read this post to learn how to find the Cash App routing number.
Fill out the direct deposit form
To set up a direct deposit, ask your employer for a direct deposit form. Fill out your personal details which include name, address, Social Security number and account number.
Attach a blank check
Even though you have provided your account number, in most cases you will have to attach a blank check to ensure the authenticity of your account.
Submit the form
While submitting the form make sure your sensitive data lands directly to your payroll officer.
Advantages of Direct Deposit
Payments by direct deposit are more convenient than paying by check. This method of transaction does not require a signature on each payment, there is no need for the employees to visit the bank to deposit the checks and wait several days for the check to clear and receive their payments.It saves time and energy for the employees. Checks are likely to get damaged, lost or stolen, direct deposit eliminates this risk as all the transactions are electronic.Direct deposit also keeps your money safe and secure.
Disadvantages of direct deposit
While direct deposit is fast and reliable, it is not perfect. It comes with its own set of drawbacks.
Direct deposit might fail
Like many other digital services, direct deposit also depends upon the well-being of the server and network. It is important that the server and network always keep working perfectly.
Early submission of payroll
One of the major setbacks while using direct deposit is that the payroll must be submitted 1-3 days early to ensure timely payments.
While applying for direct deposit there is a fee to be paid in order to avail of the service.
Risk of Cyber Attacks
Because the transactions are carried out electronically, they are vulnerable to cyber-attacks. Although now banks have started taking ample precautions to eliminate this risk.
Bank account required
A bank account is necessary to make a direct deposit. If the recipient does not have a bank account, then the payments should be conducted through an alternative method.
Direct deposit will save a magnificent amount of your time and is generally easy to set up. The employees no longer have to visit the bank, deposit the check and wait several days to receive their hard-earned money.