Is direct deposit safe?

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According to the Bureau of the Fiscal Service, the U.S. government paid 99.5% of its salary disbursements in March 2018 via electronic funds transfer. And the federal government isn’t the only one that favors direct deposit. In a 2008 survey by the U.S. Department of Treasury, Americans rated direct deposit as one of the most important financial management tools—even above their ATM card.

But is direct deposit safe?

What is direct deposit?

Direct deposit refers to payments that are transferred directly from the account of the person making the payment to the account of the person receiving the payment. The transfer occurs without any written check or manual deposit.

When is direct deposit used?

One of the most common uses of direct deposit involves employee paychecks. You provide an employer with your bank account information, and it sets up the direct deposit of your paycheck. That way, when you wake up on payday, the amount is in your account.

Other uses of direct deposit include:

  • Payment of federal and state tax refunds
  • Quicker receipt of special funds, such as the 2020 COVID-19 stimulus checks
  • Paying your bills, which can involve you initiating the direct deposit into the account of the provider
  • Getting Social Security benefits
  • Accepting direct payments from businesses, friends or family

Direct deposit is a secure option

With the number of organizations—including government agencies—willing to use direct deposit, you probably already realize that it’s deemed safe. But you might not realize how much more secure direct deposit is than paper checks and manual deposits can be.

When a direct deposit is sent, the information is limited to you, the paying entity and your two banking providers. That’s not necessarily true when you deal with a paper check, which can be misplaced, copied or even stolen.

Paper checks have a lot of sensitive information on them. They can include full names, addresses and identifying numbers such as Social Security and driver’s license numbers. They also include bank account and routing information and signatures—all of which can be used to steal identities or commit other fraudulent acts.

Direct deposit offers fewer opportunities for fraud. Someone can’t, for example, steal a direct deposit and put it in their own account as they might be able to do with a paper check or cash payment.

Other advantages of direct deposit

Helping to protect your identity and financial information isn’t direct deposit’s only claim to fame. One of the top reasons people use this financial tool is convenience. You can get paid without taking a trip to the bank, and your money may be available faster. When you deposit a paper check, the bank may hold the funds for a few days to ensure the check clears. Once direct deposits hit your account, it usually means the funds are available.

Other benefits of direct deposit include:

  • They’re easy. If you’re the one receiving a regular direct deposit payment, you might not need to take any action at all after the original setup.
  • They let you use online banking, which can save you money since you aren’t paying for service at a local branch.
  • They reduce the need for paper, cutting down on filing, shredding and other paper management tasks.

Guidelines for using direct deposit

To get the most out of direct deposit and ensure it really is secure, you do need to follow some guidelines. Check out the tips for using direct deposit safely below.

Make sure all the information is correct

Before someone can send you money via direct deposit, they need some information. That includes:

  • Whether the money will be deposited into a checking or savings account
  • What the account number is
  • What the bank’s routing number is
  • Your name, exactly as it appears on the account in question

A small typo in the account or routing number can lead to a missing direct deposit, which can be inconvenient or frustrating. When you’re providing someone with this information, triple-check every number and letter to make sure you aren’t making an error.

Many times, the employer or other entity setting up the direct deposit asks for a voided check for the account where you want the money deposited. A voided check is one that you write “VOID” across so it can’t be used. Since the check includes all the information required for a direct deposit, it’s an easy way to ensure you’re providing accurate information.

Regularly check your bank statements

Once you do set up direct deposit, make sure you’re checking your bank statements regularly to ensure everything is coming in as you expect. Don’t simply rely on your employer or other organizations to properly deposit funds as you write checks or use your account to pay bills and make purchases. If someone makes an error, you could have payments returned for insufficient funds.

At minimum, check your statements monthly. If you have online access to your checking account, you might want to review deposits and withdrawals at least once a week.

Update your information when you switch banks

Don’t forget to update your direct deposit information with all applicable organizations when you switch banks or need to have funds hit another account. It’s especially important to let your employer know about changes in bank accounts as soon as possible.

The employer has to process the change, which can include human resources or payroll paperwork. It’s possible the change might not be fully processed for the next pay period, so let your employer know if you need to receive a paper check in the meantime. This might be necessary if you had to close a checking account for some reason.

Is direct deposit right for you?

Direct deposit is a popular option that’s probably right for most people. Only you can know what your financial needs are, though. If you do decide that secure direct deposit is right for you, you’ll need a checking or savings account in good standing to receive your funds. You’ll also need to manage your account regularly to ensure nothing goes wrong with any of your direct deposits.

Direct deposits are a great way to ensure you have money in the bank on time to pay your bills. Just as you pay attention to your checking account to ensure nothing goes wrong, you should pay attention to your credit report.

If you find that a mistake has occurred and there’s an inaccurate negative item on your report—such as a late payment—contact to find out how to dispute it.

Posted in Security
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