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Direct Deposit: What It Is and How to Set it Up

Jenna Taubel

Jenna Taubel About The Author

Dec 20, 2018 5:36:00 AM

what is direct deposit | how to set up direct deposit | advantages of direct deposit | first alliance credit unionThere are three main ways you can receive payments: cash, checks, or electronically. Each of these payment methods has its advantages and disadvantages. One method, though, can give you a huge advantage when it comes to helping you manage your personal finances, a form of electronic payment called direct deposit.

What is Direct Deposit?

Direct deposit means that your paycheck is automatically and electronically deposited directly into your banking account. There is no physical check or cash involved with a direct deposit.

Direct deposit uses a system called Automated Clearing House (ACH) to deposit your funds into your account. This allows your employer to send the fund electronically from their banking account directly into yours.

Over 80% of workers in the United States opt for direct deposit rather than a physical check for their paychecks because of the convenience and security. Increasingly employers are requiring their employees to have their paychecks direct deposited into a banking account and no longer print paper checks due to the cost savings involved. You can even have social security payments and tax refunds directly deposited.

what is direct deposit |  how to set up direct deposit | benefits of direct deposit | first alliance credit union

Using direct deposit has several key benefits over paper checks or cash:

  • There is no risk of having your paycheck lost or stolen
  • You do not need to take time to make a deposit at your financial institution
  • You can have your paycheck automatically divided into multiple accounts
  • You get immediate access to your money on payday
  • Your paycheck is always deposited on payday even if you are not at work that day
  • Better for the environment because no paper check is involved
  • There is typically no cost to set up and receive your money via direct deposit
  • Can be deposited into any type of account you want: checking, saving, money market, etc.

How to Set Up Direct Deposit

Having your paycheck directly deposited into your banking account is a fairly quick and easy process. You will need to know two pieces of information your account number and the routing number for your financial institution. You can often find this information at the bottom of your personal checks. If you do not have personal checks you can also contact your financial institution and they can provide that information to you.

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Routing Number: It is a nine digit number that is the bank or credit union's electronic address essentially. Each financial institution has a different routing number, some even have multiple routing numbers for different purposes. This number tells your employer's financial institution where your account is located for depositing your paycheck.
Account Number: This is your specific account number at your specific financial institution. This number tells your financial institution which account to place the funds into at the time the direct deposit comes in from your employer.

Most employers who offer direct deposit have a short form that you need to complete in order to set up your paycheck to be direct deposited into your banking account. If they do not have a direct deposit form your financial institution will have one available you can take to your Human Resources department. Once you have given the completed direct deposit form to your employer you will start receiving your paychecks automatically into your account.


Summary of What Direct Deposit Is and How to Set it Up

Direct deposit is an electronic form of payment that is a secure way to receive your paychecks faster. There are many advantages to using direct deposit for your paycheck. The direct deposit process is easy and it will make your financial life more streamlined. Ask your employer if direct deposit is an option for you today!