Everybody gets excited when payday arrives. It's a sign that another milestone has been reached. However, having to deposit a check at a physical location can take a lot of time – if you have to wait for a paycheck, enjoying the fruits of your labor doesn’t come so quickly.
Instead of waiting, direct deposits can be a faster way of sending and receiving money between two accounts, allowing your money to be available when it’s needed.
In this article, we’ll tell you everything that you’d like to know about using direct deposits, such as what is a direct deposit, how does it work, and how to set up one.
Plus, we’ll also talk about how DroppCash can save you money when you need to send and receive in different currencies – but more on this later.
What is direct deposit?
Direct deposit is a fully automated funds transfer method from one bank account to another, where the transfer is done electronically instead of using a physical check. It is often seen as the simplest and fastest way to be able to access money.
Once a direct deposit is set, banks will use the ACH (Automated Clearing House) network to make these transfers between them.
It’s also a great way to reduce transfer costs, automate payments, and avoid fraudulent payroll scams, which is why it’s become a popular method among companies for paying their employees and other expenses.
In a lot of places, direct deposit is a required method of paying wages, but this can vary from one region to another.
How does direct deposit work?
With direct deposit, funds are transferred through a secure electronic network. The sender sets up their banking information to include receivers’ banking data, such as the name of their bank and the bank’s routing number.
Once the account or accounts are added, payments can be directly sent from the sender’s bank account, usually with just a couple of clicks and keyboard strokes.
The receiver (like an employee) doesn’t have to use the same bank, as established bank routing protocols allow different financial institutions to seamlessly communicate with one another.
When an employee or vendor receives funds via direct deposit, the account balance will automatically increase when the payment arrives.
Unlike when you receive money with cash or check, with direct deposit you don’t need to accept the payment. And as to the sending account, when paid with direct deposit, the designated balance will decrease when the payment is made.
How to set up direct deposit?
Regardless of signing up with your employer or a different provider, the process is fairly similar. While the direct deposit forms you need to fill out may be different depending on the provider, generally, you just need to provide them the further bank account information:
In some cases, the company paying you might ask for a voided check or a specific form.
Routing numbers are something banks use to identify each other in the US banking system. They're made up of nine digits, and the ACH network also requires them to facilitate electronic money transfers. You may be also asked to provide your bank’s address and for verification purposes, the provider might ask you to provide a voided check as well.
Once you have all the information, these are the following steps you need to follow to set up a direct deposit:
Need to pay or receive in different currencies? Meet DroppCash.
If you create a DroppCash account, you'll avoid the big conversion fees in international transactions - either if you open a business or a personal account DroppCash account. Your money will be converted with the mid-market rate, and there will be no Swift fees nor intermediary banks taking their cut.
This is why DroppCash could save you money and time, especially in international transactions:
How long does a direct deposit take?
Creating the direct deposit process might be time-consuming if the company has a long list of employees to be entered.
However, once everything is in place, adding (or deleting in case of departure) employees takes just a couple of minutes. After everything is set up, running the payroll batch on payday only requires a few minutes.
As an employee, you might receive your funds in a matter of minutes, especially if you use the same bank as the employer.
However, if transfers have to pass from one bank to another or involve cross-border payments, the money won’t arrive quite as quickly. In some cases, it is possible that the funds will be available in as little as one to two hours. In others, substantial delays of a couple of days may occur. However, this only applies to cross-border payments.
Direct deposits: possible uses
Here are a couple of cases where direct deposits can provide a real advantage to physical checks – saving you plenty of time. Set up a direct deposit to arrange payments such as: