Direct Deposit

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Direct deposit, which involves the transfer of funds from a source to a payee's bank account, represents a win-win arrangement for everyone. Logistically simpler, it eliminates the leg work, the time required to present a check, the risk of losing a check or cash and some of the anxiety related to waiting to be physically handed or mailed a paycheck or other payment. For employers, it creates a digital trail of documentation that can be reviewed should any questions arise regarding payments.

It also is convenient in those cases in which currency conversion is required, in eliminating a foreign exchange step, which is normally performed automatically by one of the intermediary banks.

When setting up a direct deposit, it is vital that all the essential banking information be provided, e.g., account-holder's name, "transit number", "SWIFT number", bank address, account number and possibly a voided check.

Direct deposit is a banking option that allows for the transfer of funds without going through the process of issuing paper checks or paying in cash. In terms of payroll, this means that the employee's pay is electronically deposited into an indicated bank on or before each payday. In return, the employee receives a stub listing the gross amount of pay, any withholding or deductions, and the net amount deposited. Because of its convenience, it is a very popular form of money transfer in many countries. Not only do many organizations offer their employees the option of using direct deposit to receive their paychecks, many government tax agencies also allow their taxpayers to either pay their taxes or receive refunds via direct deposit. Recipients of other forms of government benefits are also offered the direct deposit option.

There are several advantages to using the direct deposit option. Firstly, direct deposits are usually processed much faster than paper checks, allowing the recipient quicker access to the money. There is also no risk of checks being lost or stolen. Secondly, it is also more convenient for the recipient as he or she does not need to make a trip to the bank just to cash checks. Thirdly, many banks offer free or lower-cost checking for customers with direct deposit because it saves them the cost of processing paper checks. Fourthly, the option also allows those, who want to be more disciplined about saving money, to arrange to have the direct deposit automatically divided between the checking account and savings account.

Direct deposit, if set up as an automatic deposit from a well-funded account, reduces the risk of "forgotten" payments, thereby providing a form of reassurance to the payee that payment will be predictable and reliable. It is also important to be informed of any fees that may be associated with direct deposit, especially if self-employed, with a business account set up for such deposits.

The paying company's payment cycle should be clearly understood, in order to avoid any needless concerns or confrontations about "late" or "missing" payments, e.g., when a company pays monthly instead of biweekly or on the first day of the next month, rather than on the last day of the current month.
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