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Direct Deposit

Definition - What does Direct Deposit mean?

Direct deposit is the electronic payment transfer of paid salaries, hourly wages and other payments from a company's payroll to its employees' online bank accounts. Direct deposit eliminates the need to cash checks and funds can be used immediately. Direct deposit is used by most large companies, many of which do not issue paper checks at all.

Direct deposit is also known as electronic deposit.

Techopedia explains Direct Deposit

Direct deposit is used for a number of financial payment transactions, including:

  • Pension payments
  • Expense reimbursements
  • Tax refunds
  • Company dividends
  • Company bonuses

Direct deposit provides many advantages for employees and businesses alike. For employees, it means their pay will be added to their accounts immediately on pay day and they won't have to wait for a check to clear. This also means that an employee can receive this pay no matter where they are as long as they have access to their bank accounts. Direct deposit also provides more privacy than paper checks.

Direct deposit can be used as a method of recruiting new employees because it is often included in benefits packages. Companies of any size can use this electronic bank transaction, for which payroll software packages abound. Some banks or independent processors offer their customers free or discounted fees should they opt to use direct deposit. Check reconciliation for net pay is eliminated during the direct deposit process. In addition, direct deposit makes it such that businesses don't have to deal with stopping payment on lost or stolen checks.

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