How To Set Up Direct Deposit

John Egan is an experienced personal finance journalist who has written extensively on mortgages and home equity, insurance, credit and credit monitoring, banking, and other personal finance topics. His work has been published by Bankrate, Forbes Advisor, U.S. News & World Report, The Balance and many others. He earned a bachelor's degree in journalism from the University of Kansas and a masters degree in marketing from Southern New Hampshire University.

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Setting up direct deposit is as simple as filling out a paper or online form and submitting it to your employer. Then, your employer can make payments directly to your bank account instead of mailing you a check for you to deposit. Direct deposit allows you to get your money more quickly. Learn more about how to set up direct deposit and the advantages for both employees and employers.

Key Takeaways

• You typically need a bank account to set up direct deposit for a paycheck.
• You may need to submit a paper form or complete the process online.
• You might need to submit a voided check during the direct deposit setup.
• Generally, funds from a direct deposit paycheck are available immediately.

What Is Direct Deposit?

Direct deposit is a process of depositing money electronically into a bank account. Typically the money is a paycheck or a benefits check, but it can also be other types of payment. With this process, banks can avoid issuing paper checks for payments and you can get your money faster.

In the case of a paycheck, an employer’s financial institution submits a request for a direct deposit to the Automated Clearing House (ACH) network. ACH handles electronic money transfers among banks and credit unions. The network processes the direct deposit and sends it to an employee’s financial institution. Then, the dollar amount of the direct deposit appears in the employee’s account and the same amount comes out of the employer’s account.

Note

The U.S. Air Force was the first U.S. employer to roll out a direct deposit payroll program. Now, millions of American workers receive their pay through direct deposit.

Is Direct Deposit Required?

Some states allow employers to mandate direct deposit for some or all employees, with certain exceptions. However, employers in most states must allow employees to choose whether they receive paychecks by direct deposit. If the employee does choose to have their money electronically deposited, they typically must provide their consent in writing.

Meanwhile, all federal benefits payments must be made electronically, either through direct deposit or a Direct Express debit card.

Regardless of any government mandates, direct deposit is widely used in the United States:

• 95% of American workers receive paychecks through direct deposit.
• 95% of American taxpayers receive federal tax refunds through direct deposit.
• 99% of Americans receive Social Security benefits through direct deposit.

How To Set Up Direct Deposit

Here are five steps for setting up direct deposit for a paycheck, a process that typically occurs when you start a job:

1. Get a direct deposit form from your employer: Some employers may allow you to set up direct deposit online.
2. Fill out the form: Information you’ll need to provide includes the name of the account holder, name, address, and routing number of the financial institution, account type (checking or savings), and account number.
3. Determine how much of your pay you want to put into an account: You can typically direct the full amount to one account or split a direct deposit among checking and savings accounts, if you’d like.
4. Submit a voided check: Most, but not all, employers require a voided check to sign up for direct deposit. A voided check can’t be used to make a payment, but it can be used to supply and verify account information.
5. Submit the form: Make sure the information on the direct deposit form is correct before you give it to your employer. It may take one or two pay periods for a direct deposit request to take effect.

Many financial institutions give you immediate access to a direct deposit paycheck. However, it might take one to three days for funds from a direct deposit paycheck to become available.

Direct deposits are not posted to bank accounts on Saturdays, Sundays, and federal holidays.

Benefits of Direct Deposit

Both employees and employers can benefit from direct deposit of paychecks.

Direct Deposit Benefits for Employees

• Employees can get paid faster.
• Employees can divide a paycheck among checking and savings accounts.
• Employees can get their paychecks without needing to visit a branch, head to an ATM, or do a mobile deposit.
• Employees can eliminate the possibility of a paper check being lost or stolen.

Direct Deposit Benefits for Employers

• Employers can reduce the likelihood of check fraud.
• Employers can cut payroll expenses.
• Employers can avoid the hassles of processing and distributing paper checks.
• Employers can improve recordkeeping.

Some criminals try to steal direct deposit paychecks through what’s known as a payroll diversion scam. In this scam, a cybercrook sends fake emails to an employee or payroll manager in an effort to fraudulently obtain direct deposit information. If the scheme succeeds, a paycheck is redirected from the employee’s bank account to the cyberthief’s bank account.

Frequently Asked Questions (FAQs)

Can I Set Up Direct Deposit Online?

Your employer may let you set up direct deposit online. If not, you’ll need to complete a paper form and submit it to your employer.

How Much Does it Cost to Set up Direct Deposit?

Typically, there is no cost for employees to set up direct deposit. An employee generally pays nothing to receive their pay through direct deposit. Employers might need to pay fees to set up direct deposit capabilities, though.

Do You Need a Bank Account to Set up Direct Deposit?

You generally need a bank account to set up direct deposit. Some financial institutions offer free or low-cost accounts for people who receive their pay through direct deposit. In addition, you may be able to receive direct deposits with a prepaid debit card, like a company payroll card. You also may be able to send direct deposits to accounts connected to payment apps or online payment systems.

The Bottom Line

Direct deposit is a generally safe, convenient way for an electronic payment—such as a paycheck or Social Security check—to be transferred from the sender’s bank account to the recipient’s bank account or accounts. Direct deposit can be set up by filling out a paper or online form. When it comes to paychecks, it may take one or two pay periods for a direct deposit request to take effect. A significant majority of employees use direct deposits to receive their paychecks, but whether it is best for you will depend on your situation.

1. ADP. “How to Set Up Payroll Direct Deposit with Service Providers.“
2. Consumer Financial Protection Bureau (CFPB). “What Is an ACH?”
3. Nacha. “About Us.
4. ADP. “The Advantages of Direct Deposit.”
5. Social Security Administration. “Social Security Direct Deposit.”
6. Nacha. “ACH Payments Fact Sheet.”
7. Consumer Financial Protection Bureau. “I Get My Paycheck By Direct Deposit.”

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