What Is Direct Deposit? How It Works and How You Can Set It Up

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People have a seemingly never-ending list of tasks to check off their to-do lists these days. Thankfully, running to the bank to deposit your paycheck or other payment doesn’t have to be one of them thanks to direct deposit. About 93% of people in America receive their funds through direct deposit. It’s convenient and saves money for both employees and employers.

What Is Direct Deposit?

Direct deposit is an electronic transfer of funds to either your checking or savings account. You no longer have to run to the bank every payday — the money is automatically deposited in your account. It’s also immediately available, unlike payroll checks, which sometimes take a day or two to clear.

How Does Direct Deposit Work?

Your employer transfers money into your account by using ACH, which stands for Automated Clearing House. Tens of millions of Americans use ACH to receive their paychecks. ACH coordinates the transfer of funds from one bank account to another.

You can split your direct deposit payment into parts. One part can be deposited into your checking account and a certain percentage into your savings account. This makes saving money easy, as you don’t have to think about it. You can even deposit part of your paycheck into an investment account.

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What Are the Types of Direct Deposit Payments?

Not only can you get your paycheck delivered to you via direct deposit, but you can also elect to receive:

How Do You Set Up Direct Deposit?

Setting up direct deposit is easy. If you want your employer to pay you via direct deposit, your first step is to go to Human Resources and request a form. No matter what type of deposit you’re electing to start receiving electronically, the following bits of information are usually required:

Sometimes a voided check is also required. A voided check is handy because it lists almost all of the information needed to set up direct deposit.

How To Read a Check

Here’s a quick overview on how to read a check, particularly where to identify the routing and account numbers.

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  1. You’ll find the routing number on the bottom of the check on the left side — it’s a nine-digit string of numbers. Routing numbers are always nine digits. The first four numbers are the Federal Reserve Routing number. The next four numbers identify your bank and the last number is the check digit.
  2. Directly to the right of your routing number will be your account number. These are usually eight or nine digits long. It varies from bank to bank.

If you switch banks — or if your bank merges with another bank — your routing numbers and account numbers may change. Then you’ll have to update everyone who directly deposits money in your account.

Keep in Mind

Direct deposit usually takes at least one or sometimes two pay cycles to go into effect. Depending on your company, you may get a paper check for the first two pay cycles. After that direct deposit should be set up.

Your routing number and your bank account numbers are sensitive information. Anyone with these two sets of numbers can commit ACH fraud and set up transfers out of your account, or make fraudulent copies of your checks. Don’t send this information via email — do it in person, instead.

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Why Switch To Direct Deposit?

There are many reasons to switch to direct deposit if you haven’t done so already.

Direct Deposit Is Faster

No more wasting time by running to the bank every payday to deposit your check. You won’t have to worry if you’re sick, too busy, or out of the country. The money is just deposited automatically.

Your money is also immediately available. As soon as it hits your account, you can use it to pay bills or spend it as you see fit.

Payroll checks are often directly deposited at midnight on the day of your payday. You won’t even have to go to work. With so many people working from home these days, this is a distinct advantage.

Less Waste

You won’t have payroll checks to clutter your files when you switch to direct deposit. Using ACH to pay bills or receive money is also more environmentally friendly, as it uses less paper and fewer resources.


If you haven’t switched to direct deposit already, you owe it to yourself to make the switch. Direct deposit is faster, easier, more efficient and cheaper.

Eventually, paper checks may be phased out altogether due to direct deposit’s convenience.

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Fulfill Bank Obligations

Some banks require a certain number of transactions a month or require you to keep a certain balance to get perks or avoid fees. With direct deposit, some of that work is done automatically.

Also, many online banks offer more competitive rates on savings and money market accounts. Direct deposit will automatically be sent to your account, allowing you to take advantage of online banks’ better rates.


Direct deposit is safer than receiving paper checks, which anyone can pluck right out of your mailbox. Paper checks can also be lost or stolen, neither of which is a problem if you have direct deposit.

People are sometimes scammed out of their stimulus checks, but to do it they often call you to “verify” your account details, or ask you to click on a link. Without your account number and routing numbers, they can’t just steal your stimulus check.

The biggest risk with direct deposit is when you’re setting it up. Go to your bank or Human Resources department in person. Don’t send sensitive information via email or snail mail.

Are There Any Drawbacks To Direct Deposit?

Direct deposit only works if you have a bank. Approximately 5.4% of Americans were “unbanked” in 2020. If you are one of those people, your only options are to receive paper checks or prepaid debit cards. Prepaid debit cards can carry fees for holding or using the card. But if you don’t have a bank account, you’ll have to pay them.

Andrew Lisa contributed to the reporting for this article.