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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.
On Simplii Financial’s Website
0.40% – 5.00% for eligible deposits
Minimum Deposit Requirement
No maintenance or monthly fees. Set up automatic deposits. From Aug 1st to Oct 31st, 2024 get a special interest rate – Earn 6.25% interest for 5 months on your first Simplii Financial High Interest Savings Account. Limits apply.
EQ Bank Personal Account
On EQ Bank’s Website
Minimum Deposit Requirement
Monthly Maintenance Fee
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 chequing 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 88% of Canadian workers receiving their paycheques via direct deposit, according to Payments Canada. Since direct deposit occurs automatically, it is more convenient for the employee, who can count on their paycheque arriving on payday without lifting a finger, and more economical for the employer, who does not have to spend money to print and distribute paper cheques.
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 prior to 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.
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 Canadian government prefers to pay citizens via direct deposit rather than paper cheques. You can choose to have your tax refund electronically deposited into your bank account rather than wait for a paper cheque, 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 cheques from your financial life by using direct deposit.
The process for setting up direct deposit is basically the same, no matter the payer. Here’s the process you will follow to get your own direct deposit payments:
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 prior to payday. If your payday falls on a Saturday or Sunday, direct deposit will typically hit your account on the Friday before the weekend.
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 ADP, you can view the status of your deposit from the moment your employer processes the payment.
In addition to payroll, direct deposit can also be used for the following purposes.
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 cheque to arrive, be deposited and then cleared. Paying contractors via direct deposit also reduces payroll costs for the employer, as it reduces the need to cut cheques for payment.
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 cheques 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.
According to the CRA, 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 cheques can take much longer.
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.
Safety is a common concern with direct deposit. But this method of payment is generally one of the safest methods of receiving payment.
Unlike a direct deposit, cash or a paper cheque can be lost or stolen, and someone can fraudulently cash a check not made out to them. If you lose a paper cheque, the issuer will often charge you a fee to reissue it. If your cheque 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.
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.
On Simplii Financial’s Website
0.40% – 5.00% for eligible deposits
Minimum Deposit Requirement
No maintenance or monthly fees. Set up automatic deposits. From Aug 1st to Oct 31st, 2024 get a special interest rate – Earn 6.25% interest for 5 months on your first Simplii Financial High Interest Savings Account. Limits apply.
EQ Bank Personal Account
On EQ Bank’s Website
Minimum Deposit Requirement
Monthly Maintenance Fee
If you are still receiving paper cheques as payment, there are a number of reasons to consider making direct deposit your payment method of choice.
Automated payments are much more convenient than paper checks. Even with mobile cheque deposit technology’s making a trip to the bank unnecessary for deposits, you are still stuck waiting for your paper cheque to arrive before you can put it in your account. In addition, a deposited paper cheque may need extra time before it clears your account. Your direct deposited funds will be available immediately.
Going digital by signing up for direct deposit also saves money and resources. The payer does not have to cut paper cheques and mail them, which reduces payroll expenses and is better for the environment.
This reduction in paper waste is also beneficial for the payee. Rather than having to hold on to years’ worth of old paper pay stubs in an overflowing file cabinet, your electronic records can be digitally stored.
Digital payments are also more secure than paper, since they cannot get lost in the mail, misdelivered or fraudulently cashed. So long as you are cautious while initially setting up your direct deposit, you can trust that this method of payment will not go awry.
Finally, direct deposits quickly complete transactions. Rather than waiting for paper cheques to arrive, be deposited and clear the bank, a direct deposit gets the money to the recipient quickly and efficiently, meaning transactions are cleared sooner.
Forbes Advisor writer Rachel Murphy contributed to this page.
A voided check is a common requirement for setting up direct deposit. To void a cheque, you will take an unused cheque for the account into which you would like your money to be deposited. With a pen, you will write the word VOID across the front of the cheque in large letters. This will prevent anyone from filling out the cheque and attempting to cash it. You will then attach the voided cheque to your direct deposit form and turn it into the payroll department.
Provinces can provide unemployment benefits via direct deposit. Though provinces still offer paper cheques for unemployment benefits.
Of the payment options available, direct deposit will generally be the quickest method of receiving unemployment benefits. The specific amount of time it will take to receive your money via direct deposit is within 28 days.
If you want to receive your disability benefits in a different account, the process of switching accounts can take anywhere between 30 and 60 days. If you decide to change banks, don’t close your old account until you see a successful direct deposit land in your new account.
Once your tax returns are processed and confirmed, the CRA issues most refunds within two weeks. You can check the status of your return by logging into your My Account on the CRA website. You’ll need your social insurance number, filing status, and exact refund amount. You can start checking the status of your refund as soon as 24 hours after submitting your return electronically. If you filed on paper, the return could take eight weeks.
It can be difficult to make a traditional direct deposit into another person’s bank account since you will need to have their account number and routing number, which most individuals are understandably leery about sharing. However, there are several ways to make an electronic transfer between bank accounts:
Known as early direct deposit, this feature is now offered by some digital-only banks and credit unions, and makes the deposited money available to the account holder as soon as the payer releases the funds. It has been common practice among traditional banks to take one to two days to release direct deposit funds to the customer. However, the sooner the money is in your account, the sooner it can be earning interest or be put to immediate use.
