Over the past 20 years, direct deposit has gone from being a perk to the default for most workers. But just because direct deposit is ubiquitous doesn’t mean everyone knows all the ins and outs of this payment method. So it’s a good idea to make sure you understand just what you can expect and how you can get the most out of it.

Here’s everything you need to know about using direct deposit.

What Is Direct Deposit?

Direct deposit is a fully automated method of handling transactions. When receiving a direct deposit, the payer issues an electronic payment that is automatically transferred into the payee’s checking account. There is no need for a physical check or for either party to visit the bank for the money to transfer.

This payment method has become very common in recent years, with nearly 94% of U.S. workers receiving their paychecks via direct deposit, according to the American Payroll Association’s 2020 Getting Paid in America Survey. Since direct deposit occurs automatically, it is more convenient for the employee, who can count on their paycheck arriving on payday without having to lift a finger, and more economical for the employer, who does not have to spend money to print and distribute paper checks.

How Does Cash App Direct Deposit Work?

Here’s how the direct deposit process works:-

An employer starts by collecting the banking information—including bank account number and bank routing number—of its employees and vendors. This is part of the information that your employer likely gathered from you during your onboarding process after you were hired.

Let’s say this employer makes payroll payments on the 15th and last day of every month. Generally, one or more business days before payday, the company will send its payroll instructions to its bank, which then passes that information to the Automated Clearing House (ACH). The ACH operator sorts the ACH entries and ensures that each instruction is routed to the correct financial institution for each employee’s paycheck.

Upon receiving the ACH instructions, the employees’ banks then process the payment and credit the employees’ accounts with the necessary funds.

Who Offers Direct Deposit?

Many people associate direct deposit with payroll. After all, switching over to an all-electronic system saves employers both money and time, so that is where most people first see direct deposit offerings. However, you can sign up for direct deposit payments from more than just your employer.

In particular, the U.S. government prefers to pay citizens via direct deposit rather than paper checks. Since 2013, all Social Security benefits have been paid via direct deposit or a prepaid debit card. Similarly, you can choose to have your tax refund electronically deposited into your bank account rather than wait for a paper check, which can take up to six weeks to arrive.

In addition, many private companies, independent vendors, utilities, leasing agents, charities, and other organizations offer direct deposit both as payers and payees. It is entirely possible that you can eliminate nearly all paper checks from your financial life by using direct deposit.

How To Set Up Cash App Direct Deposit

The process for setting up direct deposit is the same, no matter the payer. Here’s the process you will follow to get your direct deposit payments:

  • Fill out the direct deposit form. Your employer (or other payer) will ask you to complete a direct deposit form that will ask for several personal details, including your name, address, Social Security number and signature for authorization of the direct deposit.
  • Include your account information. In addition to the above information, the most important data on the direct deposit form is your bank or credit union account information. Specifically, you will need to provide your bank or credit union routing number and account number, or else your employer will not be able to initiate the direct deposit.
  • Deposit amount. Usually, the deposit amount equals the amount of your check. However, you may have the option—for example, with a paycheck—to deposit a percentage into your checking account and a percentage into your savings.
  • Attach a voided check or deposit slip. Though you generally provide your account information on the direct deposit form, you will also often need to attach a voided check or deposit slip to ensure that the payer is connecting to your correct bank account.
  • Submit the form. Considering how much sensitive information is included on a direct deposit form, it’s important to take care when submitting the form. If you work in a traditional office, it’s a good idea to hand this form directly to your payroll department. If you are submitting such a form remotely, use a secure file transfer service, rather than simply emailing it.

What Time Cash App Does Direct Deposit Hit?

What Time Cash App Does Direct Deposit Hit?– It varies based on your banking institution. Many banks deposit funds at midnight but check with your bank to confirm their policy. ACH deposits generally take a few days to transfer from your employer’s account to yours, which is why most employers initiate direct deposit a few days before payday. If your payday falls on a Saturday or Sunday, cash app direct deposit will typically hit your account on the Friday before the weekend.

How To Check Direct Deposit Status

Determining your direct deposit status is as simple as logging into your online bank account to see if your money’s arrived. If there is a delay, you may have to check with your employer’s payroll department. If your employer uses software like Wave or Chime, you can view the status of your deposit from the moment your employer processes the payment.

Uses and Benefits of Direct Deposit

In addition to payroll, direct deposit can also be used for the following purposes.

Independent Contractors

An independent contractor is a self-employed individual who performs “work for hire” for a client. The client is not legally an employer and therefore is not required to withhold taxes from the contractor’s pay. Additionally, the client pays the contractor upon receiving an invoice, rather than on a regular payroll schedule.

Traditionally, independent contractors are paid via check, but setting up direct deposit for such workers can be mutually beneficial for the workplace and the contractor. It ensures that the contractor’s payments, which tend to be irregular, are at least transferred directly rather than requiring a wait for the check to arrive, be deposited and then cleared. Paying contractors via direct deposit also reduces payroll costs for the employer, as it reduces the need for cutting checks for payment.

Social Security Benefits

As of 2013, all Social Security benefits are paid to beneficiaries via direct deposit. By switching to a direct deposit system, the Social Security Administration estimated a savings of $120 million per year, adding up to $1 billion in savings to taxpayers over the past decade.

Unfortunately, the direct deposit system does not work for beneficiaries without a bank account. Such beneficiaries receive their payments through a prepaid debit card.

Child Support

Direct deposit can be a simple, convenient and secure way to receive child support payments. Generally, parents receiving court-mandated child support will sign up for direct deposit through their state. With a direct deposit option, there is no waiting for paper checks in the mail, and there are no fees associated with receiving the payment. Direct deposit also makes it easy to track child support payments, as you can easily track and search for payments via your bank’s online portal.

Tax Refunds

According to the IRS, the fastest way to receive a tax refund is by filing electronically and opting for direct deposit. More than nine out of 10 refunds that combine e-file with direct deposit are processed within 21 days, while paper checks can take much longer. In addition, the IRS will allow taxpayers to direct deposit their refunds into upwards of three separate bank accounts, which means you can easily place your money exactly where you want it to go, without lifting a finger.

Paying Bills

Some recurring bills, such as rent or utilities, can be paid via direct deposit. Generally, banking customers will set up this kind of direct deposit with their bank via the institution’s “bill pay” option. This is often the only way to set up such a direct deposit, since it may be difficult otherwise to get the direct banking information for your recurring bills.

Is Direct Deposit Safe?

Safety is a common concern with direct deposit. But this method of payment is generally one of the safest methods of receiving payment.

Direct Deposit vs. Check

Unlike a direct deposit, cash or a paper check can be lost or stolen, and someone can fraudulently cash a check not made out to them. If you lose a paper check, the issuer will often charge you a fee to reissue it. If your check is stolen, the process to get your payer to issue a stop payment can be arduous and expensive.

Direct deposit does not have any of these potential safety issues. Since the money transfers automatically from the payer’s account to your account, it cannot be lost or stolen. In fact, the Social Security Administration boasts that not a single payment via direct deposit has been lost since 1976, when beneficiaries were first offered the option to receive direct deposit.

Ultimately, the biggest potential safety issue with direct deposit occurs when you are setting it up. Making certain that your bank account information goes to the correct party in an organization you trust—via a secure channel—can help ensure the safety of your direct deposit.