Everything you need to know about direct deposit

Getting your paycheck is one of the most important parts of your job (joking, the most). You may not have realized, but there are actually good (or better) ways to receive your payments.

Quick crash course: there are several options for sending or receiving payments, including cash, checks, or direct deposits. Most organizations prefer the last option.

Direct deposit has gone from perk to default because it’s a safe and inexpensive option. However, just because it’s common, doesn’t mean everyone understands what it is and how it works. There’s still some mystery around it.

What is direct deposit - really?

It’s time to become knowledgeable so you can get the most out of direct deposits. But don't panic, we got you!! At Envel have developed the world’s smartest bank account, and we’re here to help. Keep reading if you’re curious!

Your ultimate guide to direct deposits

It’s a drag to go to your bank or open up another app to make a payment. That’s why the world is a better place with direct deposits.

And now you can create an even better world for yourself by understanding direct deposits. This way, you can make more informed decisions about your finances.

Here’s your ultimate guide on direct deposits!

• What is a direct deposit?
• How to use direct deposits?
• How does direct deposit work?
• Why make the switch to direct deposit?
• How long will it take?

What is a direct deposit?

‘What’s in a name?’, Shakespeare famously asked. In this case, the direct deposit definition is all in the name! It’s when an electronic payment is deposited directly into the bank account of the payee.

To support these payments, banks need to use the Automated Clearing House (ACH) network. This network coordinates direct payments among financial institutions.

Direct deposits have some prominent and distinguishing characteristics. They are an electronic payment that eliminates the need for physical deposits. They are fully automated, meaning no action is required on your part. Plus, as we’ve mentioned, they are the most popular payment method out there. Sometimes to the point that it’s the only payment option.

How to use direct deposits?

This popular payment method is mostly associated with payroll. But there are actually several other forms of using direct deposits.

In fact, these forms are so widespread that you could eliminate all paper checks from your life - and do something good for our environment! Here are the most common applications of direct deposits:

Independent contractors: you can pay independent contractors with direct deposit pretty easily. Your payment software or payroll provider should be able to accommodate.

Social security: This is actually mandatory now. The Social Security Administration required that beneficiaries receive payments electronically in 2013.

Child support and maintenance: If you want to handle these payments using direct deposit, contact the responsible state department.

Tax refunds: You’ll get your money faster if you use direct deposit for tax refunds. All you need to do is tell your tax preparer that you prefer direct deposit.

Pay bills: You can use direct deposits to avoid checks and paying for postage, and getting your bills in on time.

You see, there are plenty of opportunities to use direct deposits. Once you’ve decided where you can use them and have set them up, it doesn’t hurt to periodically check on payments. It helps you stay on top of errors and/or identity theft.

Tip: It may be a good idea to set up alerts so that you receive emails/notifications every time a payment is deposited in your account.

How does direct deposit work?

The process of setting up direct deposits, either as a payer or payee, is pretty much the same across the board. It’s part of what makes it so easy to use and implement.

Receive direct deposits

If you want to receive direct deposits, then you need to ask for an online or paper deposit form from the organization or entity. This is where you fill out your account information.

You’ll typically need to provide the following information:

• 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
• Name(s) of account holders listed on the account
• The deposit amount
  

You can choose to deposit the whole check into a checking account. But there’s also a benefit to splitting your direct deposit into two or more accounts. For example, put 20% of your paycheck in your savings account.

[Here’s our guide on how much you should save from your paycheck every month]

When you submit the form, make sure you confirm the information and ask your employer what to expect so that you don't look for your payments in the wrong place.

Send direct deposits

If you want to send direct deposits, you’ll need a relationship with a financial institution that provides ACH payments. Typically, payroll providers, business bank accounts, or other bookkeeping services will offer that service. It’s best to check with the vendors you’re already working with before seeking other options!

Once you’re connected with the ACH network, you simply need to gather the required information from the payees (typically, your employees) that we listed above. If there is a need, disclose any local or federal laws that apply to your payees. You can best check with your accountant about the regulations in your area.

Keep in mind: Setting up direct deposit can take anywhere between a few days and a few weeks. So, plan wisely!

Why make the switch to direct deposit?

Direct deposits have some obvious advantages, like never misplacing a check again. But the reasons for individuals or businesses to make the switch extend way beyond that.

Here are the top advantages listed for you before you decide to take the plunge.

• Convenience: When you receive payments, the funds are added to your account without any action on your part. You’ll get paid no matter how busy you are!
• Save resources: Now that everything is online, you don’t need to print checks or mail them. You’re saving money, resources, and the environment by not buying paper or stamps.
• No storage: All your payment records are stored in one place, and take up no physical room. Plus, it gives you a great overview of all your payments. This is especially useful when you’re budgeting or trying to pay off debt.
• More security: Payments are moved safely from one account to another. Nobody can alter, steal, or attempt to cash in digital payments.
• Speed: If you’re getting paid via direct deposits, you’re definitely getting your money before those getting paid with paper checks.
  

Speaking of speed … how long will it take for direct deposits to arrive? See below!

How long will it take?

The big selling point of direct deposit is the time it saves you. The digitally-optimized process means you don’t have to spend time on a trip to the bank every time you get paid or wait for checks to be sent or arrive in the mail.

Although direct deposits often come close to instantly appearing in your account, the actual time frame may differ. When your money arrives sometimes depends on where the money is coming from.

If the money is coming from employers, then the money will arrive depending on the pay schedule. You can usually expect your money to arrive at midnight before your payday.

Money coming from governments is usually systematized. For example, social security benefits will probably arrive in your account on the second, third, or fourth Wednesday of each month, depending on your birthday.

Overall payments usually take one business day on average to arrive, or it may even arrive the same day. The big plus? You can use the money immediately.

Set up direct deposits in Envel

Let’s be honest, paychecks will probably have the same fate as the dinosaurs. You’ll hear whispers and peeks of the fossils, but you won’t see them around. The trend is that direct deposits are here to stay as one of the fastest and safest payment methods.

We’ve probably convinced you that direct deposits are the way to go. So, what’s the action needed now from your side?

When you start a new job, set up new payments, or open up a new bank account, you’ll want to set up direct deposits for recurring payments from the get-go. If you’re opening up a bank account with Envel, the same will apply.

If you’re not familiar with Envel, then let us give you a small introduction: we’re the world’s first AI-powered bank account. It allows users - that’s you - to have real control over finances to build wealth over time. We help you accomplish this by offering envelopes (categories for your money like savings, daily spending, etc.) and an auto-pilot that helps you automatically save and steer finances in real-time.

Enough about us, you can learn more here. It’s time to open up an account with Envel, set up direct deposit, and get paid fast!