Direct deposit is a convenient way to receive your paycheck, tax refund or Social Security benefits. Instead of waiting for the check to arrive and then waiting in line to cash or deposit it, the money shows up in your account on payday.
Typically, when you set up a direct deposit, the money goes into a checking or savings account of your choice. However, you also have the option to split the direct deposit across more than one account, and taking advantage of this arrangement can help boost your savings. Read on to learn more about how a split direct deposit works and how you can benefit from it.
How Does a Split Direct Deposit Work?
A split direct deposit gives you the ability to deposit your paycheck into multiple accounts. You can do this by depositing a percentage or set amount in your chosen accounts each pay period. Here’s how it works.
Let’s say Sam and Sara each earn $1,000 per week. Sam wants to start saving 10% of his paycheck. Each week, his employer deposits $100 in his savings account and $900 in his checking account. In contrast, Sara asks her employer to deposit $100 per week in her savings account and $900 per week in her checking account. As long as their paychecks are the same amount each week, they will continue to save the same amount of money.
You may prefer to deposit a percentage in your savings account if your paycheck fluctuates or stick with a fixed amount if you have a specific savings goal. With a percentage, the amount deposited in the savings account will go up or down depending on the amount you earned during the pay period. When you’re saving for a down payment or a new car, setting aside a specific amount from each check can help you track your progress toward the goal so you can predict when you’ll reach it. In both cases, whatever is left over can go to your checking account to be used for your monthly expenses.
Should I Split My Direct Deposit Between 2 Bank Accounts?
The decision to split your direct deposit is ultimately a personal one, but it can help you increase your savings — and that’s a good step.
According to the Consumer Financial Protection Bureau, a 2021 survey found that about one-quarter of Americans had no money set aside in savings for emergencies. The same individuals who lack emergency savings also tend to have lower financial well-being, including lower credit scores and a higher chance of delinquency on their bills.
Additionally, according to the Federal Reserve, a 2021 survey found that nearly one-third of respondents could not completely cover a surprise $400 expense without turning to credit cards or other solutions, such as borrowing money from a friend or relative.
A split direct deposit helps automate the savings process, creating a way for you to effortlessly save money. Since the money goes into a separate account — ideally one that you don’t access every day — you may be less likely to spend the money you’re setting aside. To maximize your savings, you can deposit the money in a high-yield savings account to capitalize on today’s top interest rates.
How Can I Split My Direct Deposit Into 2 Accounts?
Before you can split your direct deposit into two accounts, make sure your employer offers the service and open a savings account if you don’t already have one. Having a checking and savings account at the same bank is convenient since you can easily transfer money between the accounts and monitor them through a single mobile app. However, opening a savings account at a different bank may be a better option if you prefer an out-of-sight, out-of-mind approach to saving.
Ask your employer or bank for the direct deposit website link or form and complete it. This is where you’ll provide the account information for each account and designate how much of each check you want to go into each account. You’ll need the routing number for each bank, and you may need to give additional documents like a voided check or deposit slip to ensure you’ve given accurate information.
Depending on how long it takes your employer to process the form and where you are in the payroll cycle, you may have to wait a few pay periods before the split direct deposit is in place.
Whether you’re saving for a down payment on a house or building an emergency fund, saving money is an important habit to cultivate. When you have money on hand to cover a surprise expense, you’re in better control of your cash and less likely to borrow money. Choosing to split your direct deposit can make it easier to save money by automating your savings and helping you make it a regular part of your budget.
- Can I split my tax refund into multiple bank accounts?
- Yes, you can split your tax refund into up to three different accounts, and this option is available to you whether you file electronically or on paper. The IRS will let you divide the refund between checking and savings accounts with different banks, and you can decide how much of the refund to deposit in each account. Follow the instructions on the software used to file your return, or include a completed Form 8888, Allocation of Refund with your paper return.
- Can I split direct deposits of Social Security benefits?
- The Social Security Administration does not currently allow you to split the funds between more than one bank. Until the agency upgrades the system, you must deposit the money in a single checking or savings account.
- How much money should I deposit into savings?
- How much you should deposit into your savings account depends on factors like what you're saving for, your financial security and your age. If you're saving for a specific goal like a big vacation, you may want to set aside a specific amount of money from each paycheck. If you're building your emergency fund, you may consider depositing 10% or 20% of your income toward saving up three to six months' worth of living expenses.
- Another consideration is the amount of money you have left over each month after paying the bills. Add up all of your necessities, including housing, vehicles, food, medical expenses and utilities. What's left over is your disposable income, and you may decide to save a percentage of that amount each month so you know you're still paying your bills. This lets you develop a habit of building savings that can grow over time. When it comes to savings, something is better than nothing.
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- Consumer Financial Protection Bureau. 2022. "Emergency Savings and Financial Security."
- Federal Reserve. 2022. "Economic Well-Being of U.S. Households (SHED)."
- IRS. 2023. "Frequently Asked Questions about Splitting Federal Income Tax Refunds."