What Is Direct Deposit?

What is direct deposit? Direct deposit is a means of paying employees electronically. "Direct deposit is a means of paying employees electronically," says Gwen Evans, banking professional with ten years...

"Direct deposit is a means of paying employees electronically," says Gwen Evans, banking professional with ten years experience in the industry, specializing in direct deposits. She goes on to add, "The Mechanism behind it is ACH (Automated Clearing House)." The Automated Clearing House is a nationwide mechanism in charge of electronically processing large amount of batches of credit and debit transactions. The Federal Reserve creates rules governing ACH.


Mrs. Evans further explained the process as, "Companies have or get the ability to create an NACHA from a bank or they use a third party provider to do it. A bank can sell the product or service that allows you to create an NACHA file. Next, the employer created the NACHA format of files that contains the bank information for each employee, which includes their routing number and account number. Two days before payday the file is originated and he bank processes the transaction of debiting the payers accounts and crediting the payee's accounts.


The Federal Government on local, state, and national levels, as well as most large private employers uses direct deposit. Direct deposit is marketed as " a smart way to pay employees, retirees and shareholders to save your company time and money, increase productivity, and improve your employees' job satisfaction" by the organization Direct Deposit (directdeposit.org). Surveys show that at least 65% of the United States Population used direct deposit and that 97% or users are satisfied with the service. European and Asian countries use direct Deposit as well.

Like Coke, Direct deposit has become a generic name for having money transferred into your account instead of the actual brand name. Although there is a company called Direct Deposit, "any bank can process a direct deposit", ads Mrs. Evans. There are several benefits to the company that pays employees through direct deposit. Companies save up to $0.60 per payment by using Direct Deposit instead of checks, fewer checks for the company to print and store, there are no checks to sign, and stolen and lost checks are eliminated.

Direct deposit also affords the employee many benefits. Money is instantly available to the employees on payday morning. No more time is wasted waiting to collect or to cash checks. It also allows for better financial planning since money automatically deposited in an account can also be scheduled to be for transfers to in the form of bill payments the following day. Because of Direct deposit, many people no go about their lives without worrying about banking to either deposit money or pay bills. Once scheduled, everything is automatic unless a change is needed.

Direct deposit, though not mandatory for the employee is strongly encouraged by employers who use the service. For an employee to be able to use direct deposit, they must have a checking account into which their pay can be deposited. If they employee does not have or cannot secure a checking account into which they can receive direct deposit, they are often assumed to be fiscally irresponsible.

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