Federal Reserve Bank of Dallas
Public Affairs Department
P.O. Box 655906
Dallas, Texas 75265-5906

DIRECT DEPOSIT: A Consumer's Guide

Trust-nowhere is it more important than in a banking relationship. Trust is its mainstay, and electronic banking is no exception.

With this in mind, your neighborhood financial institution has joined with others to create a system that allows individuals to take advantage of technology that has been used by businesses for years-the electronic deposit and transfer of funds, commonly known as Direct Deposit.

Direct Deposit offers consumers a money-management tool that is reliable, simple and convenient. With this system, you delegate the task of depositing certain payments into a designated account at your local financial institution. Your money is then electronically deposited into that account on the day of payment and is available for your use that day.

What makes the system work is consistent, timely execution. Your financial institution takes great care in handling your account, and consumer safeguards exist to ensure accuracy. More than 30 million people trust their funds to Direct Deposit. To begin your Direct Deposit service, contact your financial institution.

How does Direct Deposit work?

The process is simple. The organization paying you notifies your financial institution electronically that a specified amount of money should be made available to you in an account you designate. Federal Reserve Banks and financial institutions process these electronic transactions through a national automated clearinghouse (ACH) system.

You will receive a payment stub from the organization paying you when your deposit is made. This stub is similar to a deposit slip in that it indicates the date and amount of money deposited into your account and may be used as proof of availability of funds. However, you will not receive a payment stub with federal recurring payments

With Direct Deposit, your funds are available for use the morning of the payment date. If you go to your bank and deposit your check in person, you might not have access to your funds until the next day or longer. In addition, the confidentiality of your payment is maintained when Direct Deposit is used because fewer people are involved in the process of depositing your money. Finally, there is no charge for Direct Deposit.

What payments are best suited to Direct Deposit?

Any ongoing, regularly scheduled payment is a good candidate for Direct Deposit. Many government payments qualify, and many employers offer it as an option for payroll checks. Listed below are just a few of the payments available through Direct Deposit:

Company Payroll

Dividend or Interest Federal Salary Social Security Civil Service Retirement Veterans Affairs Compensation Railroad Retirement

How do I begin Direct Deposit?

Inquire at your financial institution for information on beginning Direct Deposit. A member of the staff will be able to answer any questions you may have about Direct Deposit and will help you begin your service. In the case of company payroll payments, ask your personnel or payroll department for information.

What happens if my deposit is not made for some reason?

Direct Deposit is extremely reliable. Of more than 1 billion deposits made in 1992 by Direct Deposit, 99.9 percent were processed without a hitch. Of those deposits that did experience a problem, almost all were rectified within one day.

However, because every deposit is important to you, rules are in place to protect your funds and credit in case of an error. Your funds are safeguarded under the Federal Reserve Electronic Funds Transfer Act (Regulation E), as well as National Automated Clearing House Association (NACHA) guidelines.

Under these regulations and guidelines, your financial institution agrees to rectify any problem and make your funds available within one day once it has been established an error has occurred. Many financial institutions will also help customers resolve problems that result from a bank error, such as bounced checks, by notifying the business where the transaction occurred.

Your financial institution must investigate the error and quickly report the results to you. Once the investigation confirms an error did occur, your financial institution will rectify the situation immediately.

If the investigation indicates an error did not occur, the financial institution must deliver to you a written explanation of its findings within three days after concluding its investigation. You may also request copies of the documentation or information used in the investigation.

If the financial institution is unable to determine whether an error occurred, or if there is a dispute concerning the error, additional procedures exist to resolve the problem. For more information concerning these procedures, contact the Consumer Affairs Division at your Federal Reserve Bank.

Can I use Direct Deposit to have money withdrawn from my account?

In addition to receiving payments into your account through Direct Deposit, you can electronically withdraw money from your account to pay your bills. By authorizing a withdrawal for a specific amount at a predetermined date each month, you can pay your bills without having to write and mail checks. The automated bill payment method saves you time, saves you money on postage costs and ensures prompt payment of bills.

Benefits of Direct Deposit

With Direct Deposit, you do not have to worry about lost or stolen payment checks. Your payment is automatically deposited safely into your account.

You do not have to take the time to go to your financial institution to deposit your check. If you are out of town, your payment will be deposited into your account in your absence, allowing that money to immediately begin drawing whatever interest may apply. Many payments are sent through the mail, losing up to 10 days of interest. Direct Deposit eliminates the mailing period, so your payments begin drawing interest on the day of deposit.

Direct Deposit is easy to begin, and you may change your financial institution, change the account receiving the Direct Deposit or stop service by simply completing a form.

You may have your funds deposited into one of a variety of accounts, such as a money market account, a savings account or a checking account, depending on your needs.

You can be assured your funds are deposited into your designated account on time, correctly and confidentially. Regulation E ensures proper handling of your account.

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