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What are the benefits of direct deposit?

minute read

    Quick insights

    • Direct deposit enables employers to send money electronically to employees.
    • This electronic payment method offers benefits to employees and employers alike.
    • Direct deposit provides a convenient way for employees to get paid quickly without visiting a bank or depositing a paper check.

    Most people look forward to payday. Direct deposit is a low-hassle, secure and convenient way to ensure money lands safely in your account, so you can spend however you like. Learn more about how direct deposit works, along with its pros and cons.

    What is direct deposit?

    Direct deposit refers to the digital transfer of money into a recipient’s checking or savings account. Direct deposit may be used for a variety of payments, but this electronic payment method is commonly used for a company’s payroll process. When employees enroll in direct deposit, a company can send money for single payments or on a recurring basis.

    How does direct deposit work?

    To make a direct deposit, a company sends money directly to an individual. The transfer of money is made possible by the Automated Clearing House (ACH) network, a payment system that reaches all U.S. banks and credit unions.

    Normally, people enroll in direct deposit with their employers on a recurring basis. When you do this, you’ll receive a direct deposit on the employer’s normal payroll schedule. Employers typically schedule direct deposits for your paycheck so that the money is available in your account on payday.

    Setting up direct deposit with an employer

    Here are the steps normally required to enroll in direct deposit:

    1. Request a direct deposit form: This is an authorization form specific to your employer that captures key information from you.
    2. Complete the form: You normally have to list your name, your financial institution’s name and routing number, along with the account number where you want the money deposited, and designate checking or savings.
    3. Choose a deposit amount: You may be able to choose how much of your paycheck you want to be deposited into your account. It’s common to put the majority of your pay into your checking account so that you can pay bills and spend your hard-earned money.
    4. Attach a voided check or deposit slip: In some cases, you may need to provide a voided check or deposit slip along with the direct deposit form.
    5. Submit the form: You must send the form back to your employer, who will use it to establish direct deposit for your paycheck.

    How long does it take to set up direct deposit?

    Once you submit the proper forms, establishing direct deposit can take several days or weeks. Your employer can typically tell you when your first direct deposit will take place. The time depends on how long it takes the employer to confirm the employee’s bank account details.

    When the financial information for all parties is in order — and assuming it isn’t a bank holiday — setting up direct deposit can be a short and straightforward process.

    Pros and cons of direct deposit for employees

    For employees, direct deposit may seem like a total win: You get your paycheck with ease each pay period. There are many benefits, however there can be some downsides to consider as well.


    • Payment flexibility: Direct deposit can allow employees to divide a paycheck between checking and savings accounts. This provides an opportunity to deposit a percentage into a savings account while helping to build your savings.
    • Paycheck security: Losing or misplacing a paper check is no longer a concern for employees who set up direct deposit, which can help to manage the risk of loss.
    • Banking convenience: Employees don’t need to visit a bank branch or ATM to deposit paychecks.
    • Access to money: Employees can access their paychecks as soon as the money appears in their bank account. When paper checks are deposited, the money could take at least one business day to post.
    • Bill payment timing: In most cases, employees can arrange recurring bill payments (loan payments, utilities, credit card bills, etc.) to be paid after their paycheck is received.


    • Potentially restrictive: Some employees may prefer a paper check to deposit when and where they want.
    • Extra steps when changing banks: If employees want to switch financial institutions, they need to complete new forms to set up direct deposit for their new accounts.

    Pros and cons of direct deposit for employers

    Business owners also have pros and cons to consider when it comes to offering direct deposit to their employees. Many prefer the ease and convenience of paperless payments; however, there can also be disadvantages on the business side.


    • Cost savings: Direct deposit can help reduce the cost of processing paper checks because there are no more checks to print.
    • More control: Direct deposit can give employers more control over their payroll and related costs.
    • Reduced risk: Direct deposit helps reduce the likelihood of misplaced paper checks, which could lead to payment fraud.
    • Deposit flexibility: The payment method can enable employers to pay employees regardless of the business’ location.


    • Time sensitive: Employers need to stay on top of their payroll cycles and submit their direct deposits. Otherwise, employees may not get paid on their designated payday.
    • Maintenance fees: Banks may charge a fee to set up direct deposit, and business owners may also pay a fee for each deposit.
    • Security required: Business owners need to establish security protocols to protect their employees’ bank account information.

    Direct deposit FAQs

    Is direct deposit a wire transfer?

    No. Direct deposit is not the same as a wire transfer, which also moves money electronically between banks. A wire transfer relies on the individual bank to process the transaction and transfer the money from payer to payee. The money only moves when the bank confirms that there is enough money available to complete the transfer. Direct deposits rely on the ACH network to process and clear the transactions.

    Does direct deposit cost money?

    Direct deposit is free for employees, but employers may pay some fees for the service. Companies usually pay a setup fee to establish direct deposit as an option for their employees. The company might also pay a small fee for each transaction to maintain the service.

    Can you direct deposit into a savings account?

    Direct deposits can sometimes be issued and distributed between checking and savings accounts in different amounts. When setting up direct deposit with your employer, you complete a form to select exactly where you’d like your check deposited. It may be possible to split your pay between multiple accounts.

    How long does a direct deposit take?

    It can generally take between one and three business days for a direct deposit to become available in your bank account. For payroll, employers typically arrange direct deposits ahead of employees’ paydays to ensure their money arrives on time. Sometimes this results in payment occurring in advance of the actual payday.

    How do you check direct deposit status?

    You can check to see if a direct deposit is pending or has posted by signing in to your bank’s mobile app or website. For paychecks and other employee payments, your human resource department should be able to provide information about a direct deposit’s status.

    In conclusion

    Direct deposit can be a beneficial payroll system for companies because of its convenience and reliability. There are several factors to consider when setting up direct deposit, whether you’re an employee or a company that offers direct deposit. Review the pros and cons of direct deposit to decide whether direct deposit is right for you.

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