When starting a new position, you typically have options for how you would like to be paid. In the past, employers wrote physical checks that could then be cashed at the bank. While this option is still available today, many employees prefer to be paid through direct deposit instead. Direct deposit uses a financial network known as an automatic clearing house (ACH) to transfer money from an employer to an employee’s bank account electronically. There are many advantages to direct deposit, making it an attractive option for both companies and workers.
Utilizing direct deposit is a simple way to save time and effort. If your employer pays by check, you need to either pick the check up in person or wait for it to arrive in the mail. Depositing the check requires a trip to the bank and wait time for it to clear, which can take more than a day. This may not be a realistic option if you’re part of a remote or globally distributed workforce. Excessive delays can even create issues with payroll compliance.
Direct deposit cuts all these steps out by having payments transferred directly into your account. Once the funds are deposited, the updated balance will be available through your bank’s online platform. This convenience also means that if you are on vacation or out sick, you'll still receive payments promptly and without worry.
Direct deposit is a flexible payment option. When signing up, you can designate multiple bank accounts for your pay to go into and specify a percentage or a set amount to go into each account. A portion of your money can be deposited to a long-term savings account, for example, while the rest goes into a checking account for immediate use. This can be advantageous for putting away money since it’s done for you behind the scenes, especially if you’re an independent contractor planning for tax time.
It can be stressful to misplace a paycheck or to have to guess whether you’ve already received one. One downside of paper checks is that they can easily get lost or damaged, especially if you have to wait to cash them. If you receive checks by mail, they can also get lost in transit. While lost or severely damaged checks can be replaced, you’re then stuck waiting even longer to get paid. Direct deposit is entirely electronic and nearly instantaneous, so there’s no risk of delayed or missed payments.
Greater security is a major advantage of direct deposit. Receiving payments electronically means there’s no physical paper trail with identifying information, such as your name, address, and employer, so there’s no risk of someone taking your check or pay stub and using these details for fraudulent purposes. Information is instead sent through encrypted and secure financial systems.
Encryption encodes sensitive data so it’s not easily understood or deciphered by someone trying to intercept the information, and the information is then translated on the other side of the digital transaction. This keeps your personal and banking information secure when using your account.
Another benefit is that every transaction has a digital record created within your bank account. If you’re concerned about an error or missed payment, you have readily accessible statements that show every deposit made with dates and identifiers to help correct the issue. Being able to track payments in real time is especially beneficial when you have to account for additional funds, like bonuses or equity.
Having access to your money as soon as you get your paycheck is essential for making sure you can pay bills on time and cover other daily expenses. Physical checks deposited in person, or even through a mobile app, typically take several days to clear. Direct deposits from your employer clear much more quickly, meaning you’ll have access to your money sooner. Best of all, there’s no charge for using direct deposit to receive paychecks.
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