Individuals who plan to sign up for Social Security or other federal benefits after April 30 should be prepared to receive their money electronically. Benefits will no longer be issued via paper check starting next month. The switch in issuance is a part of the government’s plan to phase out paper checks for all recipients in the coming years.
Direct Deposit Mandatory for New Federal Benefits Recipients
Beginning May 1, everyone who applies for Social Security or other benefits issued by the government will be required to arrange for direct deposit to receive their payments. This switch to an electronic system is a part of the government’s bigger plan to phase out paper checks entirely by 2013.
Currently, it’s estimated that 85 percent of Social Security beneficiaries receive their payments through direct deposit. But despite the large number of electronic recipients, the government still issues more than 120 million checks per year.
At a cost of $1 per issued paper check vs. 10 cents per electronic payment, the Treasury estimates that it could save about $1 billion over the next 10 years by eliminating the paper option completely.
The Problem with an Electronic-Only System
While the government is looking forward to saving money, the switch to e-payments is something some beneficiaries may not be so excited about because of the problems that could arise from an electronic-only payment system:
- Nowhere to deposit the money: About 9 million U.S. households don’t have a bank account and don’t belong to a credit union, leaving them with no place to deposit the money. The government says this problem can be remedied by having the funds deposited to a prepaid debit card offered by the Treasury and Comerica Bank.
- Electronic benefits hard to protect from creditors: While banks are prohibited from freezing or garnishing accounts that contain Social Security or veterans’ benefits, if funds are commingled with other funds in their accounts, the money could be taken. To solve this issue, starting May 1, banks will be required to determine the amount of federal payments deposited in an account to protect the beneficiary from creditors.
Those beneficiaries who will start receiving payments after April 30 will be required to provide their financial institution’s routing number, the type of account (savings or checking) and account number they want to use for direct deposits.
Those who will need their payments deposited onto a debit card are encouraged to visit www.usdirectexpress.com or call 1-800-333-1795 for assistance.
