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What Is Direct Deposit? How Can It Benefit Me?

by rlcoch01 last modified Oct 31, 2007 10:29 PM

If you use direct deposit, your wages will be paid directly into your checking or savings account.  You won't receive a paycheck on payday.  You won't need one--your money's already in your account!  You'll get a statement similar to a pay stub.  On this statement will appear the pay period dates, the date of payment, your hours work, your before-tax and after-tax wages, the taxes subtracted from your check, and any other deductions.  Most states allow companies to provide these statement through their computer network rather than on paper, so long as the employee can print them out.

Many employees prefer direct deposit to receiving a paycheck.  You might also find it safer and more convenient, because:

  • You won't have to wait around for your check on payday!  The money will already be in your account.
  • If you miss work on a payday, your money's in the bank automatically.
  • You won't have to worry about losing a paycheck or having it stolen before you can get to the bank.
  • Your money will start earning interest as soon as it's deposited into your account.

You've got to give your employer permission to use direct deposit.  When you use direct deposit, your wages are transferred electronically into your account.  Your employer can't arrange to do this until you give your permission.  Some states require that you give this permission in writing; in other states, you can just tell your employer what you want.  Typically, you'll be asked to provide a voided deposit slip or check, as it contains the following necessary information:

  • the name of your financial institution (bank, credit union, etc.), and its routing number;
  • whether you want the deposits made to a checking or saving account; and
  • your account number.

In some states, employers can require that you use direct deposit.  In the following 16 states, employers can require that their employees use direct deposit:  Alabama, Kentucky, Louisiana, Maine, Massachusetts, Mississippi, Missouri, Nebraska, North Carolina, Ohio, South Carolina, South Dakota, Tennessee, Texas, Washington, and Wisconsin.

Even if you live in one of these states, and you have to use direct deposit, you get to choose which financial institution will receive your deposits.  Your employer can't require you to deposit your wages in a specific institution.

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