Direct Deposit 101

By Dawn Kellogg

Direct deposit exists to make your financial life easier. It’s also very popular! 93% of American workers get their paycheck via direct deposit, according to a 2022 survey by the American Payroll Association. 80% of taxpayers receive their federal tax refunds through direct deposit, and more than 99% of Social Security recipients get their funds through direct deposit.

At its core, direct deposit is the deposit of funds electronically into an account, rather than through a physical paper check. Because funds are transferred electronically, recipients accounts are credited automatically and pretty much immediately, so there is no need to wait for the money to clear. The network used to accept deposits is called the Automated Clearing House (ACH).

There are so many reasons to utilize direct deposit!

It’s a safe and convenient way to receive payment. Many people use direct deposit for their paychecks, Social Security, and other benefits. Taxpayers even have the option to receive their refunds in the form of direct deposit.

For payers, it cuts down on any expenses related to check-writing, postage, and administration.  For recipients, it eliminates the risk of losing a physical check or a large amount of cash, along with the need to visit a financial institution in person to make a deposit. Direct deposit is also a way to ensure that your money is deposited. If you’re out the office on vacation or for other reasons, you don’t need to wait until your return to get your money deposited.

Some financial institutions also waive monthly maintenance fees or minimum balance fees because you have set up direct deposit. It also is immediate. Where paper checks can sometimes take a week or more to clear, direct deposits are not subject to a check clearing wait period. An added bonus is that direct deposit does not rely on paper, therefore reducing the carbon footprint.

Direct deposit also allows individuals to allocate funds to different accounts based on preferences and financial goals. For example, someone may choose to have their paycheck direct deposited into three different bank accounts: one for bills, one for their emergency savings, and one for long-term savings.

In order to set up direct deposit, you will need to provide your payer with your banking information or a voided check. This process is painless and can take a few days to set up. Once the depositor has the information, it is entered into their banking system. Funds are transferred electronically and deposited into the recipient’s account the morning of the settlement date.

The Summit has recently introduced EarlyPay. With EarlyPay, members can receive their paychecks, Social Security, tax returns, and other benefits up to one day earlier. This service is automatic for all our members with direct deposit into their checking accounts – there is no need to sign up and no fees to pay to get started. We are proud to be able to offer this service to our members.

Don’t have direct deposit? Click here for more information.