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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 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?
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.
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:
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.
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:
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.
Before someone can send you money via direct deposit, they need some information. That includes:
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.
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.
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.
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 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 CreditRepair.com to find out how to dispute it.
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