Personal Finance

3 Reasons You Need Early Direct Deposit

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Everyone loves payday.

But, if you’re among – more than 20 million workers – payday can be a major inconvenience. Thanks to long lines at the bank, lost checks in the mail, and the obligatory hold period you face when depositing a check, your real payday might not arrive until the following week.

In this post, we’ll explain why direct deposit is the best way to get paid. We’ll also show you how early direct deposit can help you get paid up to two days faster.

Here’s Why You Need Direct Deposit

Reason #1: It’s Convenient

Checks are a hassle.

When you get a paper check, you’re forced to carve time out of your busy day to visit a bank or an ATM. And if you use mobile deposits, you still need to wait 3-5 business days to get full access to your funds. Are you feeling sick or enjoying vacation? Too bad – with paper paychecks, you’ll have to wait until you’re back at the office to get paid. For many people, the extra waiting time can add stress when paying the bills.

Luckily, direct deposit is a better solution.

When you get paid with direct deposit, your bank account gets the funds on payday. There are no hold periods or extra waiting time. Your money appears in your account instantly, whether you’re at the office or away on vacation. Do you have a savings account? Perfect – simply tell your employer to divvy your paycheck between your checking and savings accounts.

With direct deposit, you can truly “set it and forget it.” Once you set it up, you’ll never again worry about accessing your paycheck funds.

Reason #2: It’s More Secure

Checks are a major security risk. They can get lost, stolen, and even counterfeited. In 2016, American banks faced $2.2 billion in deposit account fraud. 35 percent of that was due to check fraud. That’s a whopping $770 million worth of fraudulent checks!

If you get paid with paper checks, there are many ways to put your paycheck at risk. For example, imagine the sheer amount of people that can access your check. Office visitors, office contractors, or even a bar attendee that’s standing too close to your belongings. And if you receive your paycheck by mail, there’s a whole host of people that can fraudulently access your mailbox. With the right amount of skills or bravado, a daring thief may try to reroute your paycheck funds.

Luckily, most companies and banks will try to work with you to replace a lost or stolen check. However, the extra time spent in recovering that lost check will be a hassle – particularly if you have bills to pay.

Direct deposit, on the other hand, is the safest way to get paid. Because the payment is electronic, it passes fewer hands between your employer and your bank account. If there are any issues with your direct deposit, you have an electronic record of each payment. And you can access all of your past pay stubs, long after you receive the paycheck.

Reason #3: You Get Paid Faster (… and with Early Direct Deposit, You Can Get Paid Much Faster)

Direct deposit isn’t just convenient. It also ensures you get paid much faster. When you get paid by check, you aren’t actually paid on that day. That’s because you must wait another 3–5 business days for your bank to clear the check. And if you’re part of the unlucky bunch that gets a paycheck by mail, you’ll have to wait yet another 2-3 days for the post office to deliver it. That is, if they don’t lose your check in the mail. This is a lot of extra time to access your own money.

With direct deposit, you actually get paid on payday. Your bank doesn’t need extra time to process your paycheck – it already processed your electronic payment before your payday. (We’ll discuss how this works below.) That means no extra waiting time and no worrying about checks getting lost in the mail. With direct deposit, your funds are instantly yours to use.

With early direct deposit, you can get paid even faster. Axos Bank’s  is an auto-feature that delivers your paycheck up to two days early. It lets you access your funds while the bank processes your payment. This means you can relieve stress by getting a head start on paying your bills. To learn how early direct deposit can help you manage money smarter, visit Direct Deposit Express here.

But How Does Direct Deposit Work?

Direct deposit infographic

While direct deposit seems instant – after all, your paycheck funds instantly appear in your bank account on payday – it’s actually a complex interaction between several financial institutions.

Here’s a simple explanation of how direct deposit works:

  • Step 1: Arrange Direct Deposit – As an employee, you start the direct deposit process by giving your bank information to your employer. Many employers offer their own direct deposit forms during new employee orientation. If not, you can get one directly from your bank. Axos Bank customers, sign up for Direct Deposit in the mobile app or in online banking. Choose "Details" after you select your account. Then choose “Manage my direct deposit.”
  • Step 2: Send Payment Instructions – Before payday, your employer will send payroll instructions to their bank (or the Originating Depository Financial Institution (ODFI) in financial-speak). These payment instructions are sent via data files that contain routing numbers, bank account details, and transaction amounts.
  • Step 3: Pass Payment Information – After the employer’s bank receives the data files, it will pass the information to an Automated Clearing House (ACH). The ACH is a network of financial institutions that process bank-to-bank electronic transfers. Because banks handle a large volume of electronic transactions, they never send ACH payments individually. Instead, the bank will wait until it receives all of the day’s ACH files before passing it along to an ACH operator.
  • Step 4: Pass Payment Information (Again) – After the ACH operator receives your employer’s payment instructions, it will organize all of its payment instructions to ensure that each payment is sent to the correct bank. Like your employer’s bank, the ACH operator receives a high volume of transactions that span a multitude of banks.
  • Step 5: Process the Payment – After your bank receives its payment instructions, it will start the payment process. Essentially, this is a back-and-forth communication between your bank, your employer’s bank, and the ACH to ensure your employer has the funds to clear the transaction. This action will span 3-5 business days. Once the payment is settled, your bank will deposit your paycheck so you can enjoy your hard-earned funds.

Here’s How Early Direct Deposit Works

Early direct deposit allows you to access your paycheck funds faster than most traditional banks.

But how does it work?

Essentially, early direct deposit works the same as regular direct deposit, except for one minor (albeit significant) difference – payment processing. (This refers to Step 5 from the previous section.) After a bank receives payment instructions from the ACH, it will deposit your paycheck after it processes the payment. With early direct deposit, however, the bank deposits the paycheck before it processes the payment. Essentially, the bank acts “on faith” that the employer's payment will clear.

For example, let’s suppose that your coworker, Matt, has a Basic Checking account from ABC Bank. You, however, have an  which has Direct Deposit Express. At your office, payday falls on a Friday. To make sure paychecks arrive on time, your employer sends payroll instructions to their bank Monday morning. Then, after your employer’s bank and the ACH finish passing instructions along, your bank and Matt’s bank both receive the payment files on Wednesday.

Next, both banks start processing the payment instructions. But, while Matt is waiting for his paycheck to arrive, Axos Bank deposits the money into your account so you can access your funds right away. Instead of getting paid on a Friday, you get paid on a Wednesday – up to two days faster than your poor coworker, Matt.

More Questions about Direct Deposit…

Is direct deposit safe?

Yes! Because direct deposit is an electronic payment, it passes fewer hands while traveling from your employer to your bank account. That makes it the safest way to get paid.

With direct deposit, can I get paid on a weekend?

Typically, no. Direct deposit processes on business days. So, if your payday falls on the weekend, your bank will usually make the funds available on the Friday before payday or the following Monday (if it’s not a federal holiday).

What happens if my payday falls on a holiday?

Many employers will grant an early payday to ensure the holidays don’t interfere with paychecks. But, regardless of your employer’s payroll preferences, direct deposit only processes on business days. This means that you will get your paycheck the day before payday or the following business day.

Can direct deposit go into a savings account?

Yes! When you set up direct deposit with your employer, be sure to bring the routing and account numbers for all accounts and voided checks to verify them.

Is direct deposit the same as a wire transfer?

No. While direct deposits are processed overnight, wire transfers are processed and deposited instantly. This usually means that the wire transfer can be sent and deposited within the same day. (For international transfers, it usually takes an extra day or two to process.)

Unfortunately, this speed does not come without cost. For example, at Axos Bank, outgoing domestic wire transfers cost $35 and international wire transfers are $45. Incoming wire transfers are free.

As such, direct deposit is the cheapest option to get paid.

Get Started with Direct Deposit

Direct deposit is fast, convenient, and the safest way to get paid. And with Direct Deposit Express, you can get paid up to two days faster than your coworkers.

To take advantage of early direct deposit, sign up for our zero-fee Essential Checking account today.

3 Reasons You Need Early Direct Deposit

This blog post was published by Axos Bank on November 1, 2019 and last updated on November 6, 2019.

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