Chances are, you’ve heard of direct deposit. It’s also likely that your employer uses direct deposit to pay you. According to a survey by NACHA, 83% of U.S. workers ages 22-34 use direct deposit in 2022. But, did you know that you can actually use direct deposit to help reach your savings goals?
Direct deposit refers to the electronic transfer of funds into a checking or savings account. Direct deposit is commonly used for automatic payments such as salary, government benefit, pension, investment, and tax refund payments.
But what a lot of people don’t realize is that it’s possible to split up direct deposit payments into separate bank accounts. Whether this is an option for you will depend on your employer or the government entity providing your regular payments, but it can be a great savings tool. By automatically placing a portion of your direct deposit into a savings account, you’ll be less likely to spend it since you’ll never really “see” it.
There are two general ways you can designate the distribution of your direct deposit funds. You can earmark a specific amount for certain accounts, and have the balance or remainder of the payment go into a separate account, or you can specify a certain percentage of the total payment for each account.
For instance, you can have a certain portion of your regular paycheck go into a checking account to cover daily expenses and recurring bills (such as your mortgage payment and utility bills), while the remainder is automatically deposited into a savings account.
If you’re interested in saving money in this manner, it’s a good idea to speak with whoever handles the payroll at your place of employment. Many banks have their own Direct Deposit Forms you can fill out and return to your employer as well. If you’re looking to split a direct deposit from a federal income tax refund, more information can be found on the IRS.gov website.
As of May 2018, the Social Security Administration only supports direct deposit to a single account, but they recommend seeing if you can preauthorize your financial institution to transfer funds into your other bank accounts in order to accomplish a similar “split payment” approach.
And let’s not forget the other benefits that direct deposit offers:
- It saves time. By having funds deposited directly into an account, you don’t have to make a trip to your bank and wait in line to deposit your check.
- It saves money. By not having to take regular trips to the bank, you can save money on gas or public transportation.
- It’s more environmentally friendly. By using direct deposit, you’re sparing trees that are used to make checks. And by making fewer trips to the bank, you’re cutting back on harmful greenhouse gas emissions coming from your vehicle.
- It’s safer and more secure. It eliminates the potential of having a check stolen or misplaced.
- It’s more immediate. When money is directly deposited into your account, there is typically no “hold” on the funds like there is when a paper check is deposited.
- It can help you avoid fees. Banks will often waive monthly checking account maintenance fees if you use direct deposit for your paychecks.
- It can qualify you for perks. Some financial institutions will entice you to use direct deposit by offering such incentives as higher interest rates on checking or savings accounts. Check with your financial institution to see if they offer any of these types of incentives.
If you haven’t already opted into direct deposit through your employer, check with them to see if they offer this method of payment. If they do, you’ll need to fill out the appropriate forms and information from your employer. You will also need to provide them with your bank’s routing number and your bank account number (or numbers if you’ll be splitting your payments into multiple accounts). Or if you don’t want to go the paper route, some banks allow you to set up direct deposit online. With BankFive’s Switch My Bank service, for example, you can switch over your direct deposit to a BankFive account with just a few clicks.
All things considered, setting up direct deposit is a fairly easy process, and can help you to achieve your savings goals!