If your employer offers direct deposit for your paychecks, there is absolutely no reason to turn it down. While most offices consider it an obvious means of paying employees, there are still millions of American workers not using direct deposit. Checks or even cash payments tend to be the preferred alternative for workers who are younger, part-time, or lower-income —but the service is free, and when it's available, it can provide several important improvements to the way you manage your paycheck.
You Receive Your Money Faster With Direct Deposit
Direct deposit involves an automatic ACH transfer from your employer into a bank account, usually your primary checking account. Banks and credit unions are required to make the funds from a direct deposit available within one business day. Compared to the time it takes for a check to clear and become available, direct deposits are a much swifter way of getting your money in hand.
Factor in the extra time it might take you to actually take the check to the bank, and the difference grows even larger. Some banks allow you to make mobile check deposits through your smartphone, but even that method won't make the check process any faster. Direct deposits happen automatically, and the funds are often available immediately after the deposit is made.
Direct deposit saves you even more time if you want to split your paycheck into multiple accounts. For example, some payroll services may give you the option of sending a set percentage into a high-interest savings account in order to grow your savings. Instead of having to write out the transfers separately each time, you can simply request a standing arrangement from your employer's payroll service, who will handle the rest.
Direct Deposits Maximize the Interest You Earn
With no delay in getting the funds into your account, direct deposits also ensure that your money is in place to earn interest as quickly and for as long as possible. While the difference of a few days may sound insignificant, the whole concept of interest revolves around making small but cumulative gains over a long period. Losing out on a few days of interest may not matter, but over time, depositing your paychecks manually can add up to a significant shortfall in the growth of your money.
Sometimes those few days may prove much more important. Many banks require you to keep a minimum balance in your account in order to earn the maximum interest rate for a given statement cycle. This means that if your daily average or daily minimum falls below a certain point, you lose out on the optimal interest for the entire month. Because this is often true for accounts with the highest deposit rates, making sure that your balance is always at its highest possible level can help protect your interest rate.
Some Banks Require Direct Deposit to Waive Monthly Fees
Other benefits of direct deposit include the ability to waive monthly maintenance fees on certain accounts. Since banks prefer customer balances to remain high, they often provide incentives to set up direct deposit, which ensures a quick and consistent source of funds moving into customer accounts. Typically, you can have your monthly checking account fee waived after a certain number or dollar amount of direct deposits to the account.
Interest-bearing checking accounts may also require direct deposit as a condition to earning the maximum rate. As discussed above with savings accounts, interest checking often asks that you make a direct deposit to your account each month, but you may also find that you'll have to meet other conditions as well. For instance, one rule that sometimes comes with the direct deposit minimum is a minimum debit transaction requirement: you must make a certain number of debit card purchases each month.