The Benefits of Direct Deposit

Your paycheck shows up in your bank account with this system

By Gary Foreman


More and more employees and employers are taking advantage of this easy banking solution.

According to the National Clearing House Association (NACHA) there are more than four billion direct deposit transactions each year. It is estimated that two thirds of the private workforce now use direct deposit for their paychecks.

Essentially, it’s a system that replaces a paycheck. Instead, the employee's pay is directly deposited into their bank by computer. The employee gets a statement from the employer that looks like the stub portion from a paycheck.

Win-Win Benefits
There are two major benefits for the employee. First, they avoid a trip to the bank every payday. NACHA estimates it takes the average person 25 minutes to drive back and forth to the bank and make the deposit. In today's busy world anyone who can save me 25 minutes a week is ahead of the game.

The second advantage for employees is that the money is available right away. With a paper paycheck, the employee's bank has to physically send the check to the employer's bank for payment. Many banks wouldn't let the employee get cash until the check clears.

In 1987, the Expedited Funds Availability Act set rules for hold periods. So-called “local” checks were held for up to two business days, out-of-state checks and ATM deposits for five business days. Some states have their own laws on check clearing that could be tighter.

Direct deposit eliminates that wait for the employee. Because the money is moved electronically, there is no paper check to clear. So funds can be available to the employee the same day that they move from the employer's account.

Gary Foreman is a former financial planner who currently edits The Dollar website and newsletters. If you wish you had more time or money visit The Dollar today.